High Risk Merchants in America
Running any sort of business involves risk. Entrepreneurs know this. It is a fact of life for high risk merchants in America.
At every stage of the game, entrepreneurs often dare taking occasional risks in service of their vision. The act of taking a business from the concept stage to opening day involves navigating a minefield of decisions, each of which could spell failure for the venture. And the risk doesn’t stop there.
Risk in context
Each transaction and each new customer encounter have the potential to place a business’s professional reputation on the line. Annual and quarterly shareholder reports are the record of the success or failure of this journey.
As a business grows, so does the potential risk.
There is an irony here. Just like opening your business, each new stage of growth involves daring risk for success. But as a business becomes more prosperous and seeks to expand, its owners must take the information documented in internal reports and use it to convince others – banks, lending institutions, credit card processing firms – that their business is a sound investment.
Banking relationships, loans and online transaction processing are all fundamental to the growth and expansion of a business. But just as you have calculated and sought to minimize risk at each stage of your business’ growth, so too must these institutions weigh and manage risk to themselves and their shareholders.
Evaluating risk: an outsider perspective
So, by what criteria do they evaluate applicant businesses? And what causes some to be designated too hot to handle? How does a business come to be considered high risk?
Businesses can be considered high risk due to:
- Internal, business-specific factors
- Factors within the industry itself
Internal, business-specific factors that cause a business to be labeled high-risk are related to how the business itself is operated. Factors like this can be addressed by attending to housekeeping details.
Does your business have its operating costs covered, and money in the bank? This is a measure of your business’ prosperity and stability. Does the principal have good credit? This is a measure of trustworthiness, good sense and professionalism.
Does the business have any outstanding loans or bills? A failure to attend to these reflects on a business’s relationships with partners and lending institutions. A failure to accrue funds, maintain sound credit and pay bills will reflect poorly on a business and cause it to be classified as high risk.
External factors may also play a role in risk assessment of a particular business. This is often due to factors beyond the owner’s control, such as characteristics of the industry in which the business operates.
Certain industries, such as the e-cigarette industry, the diet and nutraceutical industries and online gambling industry are considered high risk due to the nature of their product and client base. Less obvious are businesses like furniture stores and bankruptcy attorneys. What is it about these industries that cause them to be viewed as high risk?
What these businesses share in common is a high rate of customer fraud, credit card disputes and chargebacks. These are day-to-day risks that are understood by individual merchants as the cost of doing business. But for potential partners, such as credit card companies or online processing services, such practices can accumulate over time and lead to fines, overage fees and lost profits.
For example, some industries are prone to chargebacks – that is, dispute or event ual cancellation of credit card transactions. This can be due to any number of factors, not all of them illegal or fraudulent, but it can pose a risk to individual businesses and, by extension, banks and credit card companies.
Any time a business’ industry or individual character includes the possibility of loss to itself or partnering institutions, it is classified as high risk. In some cases, this can be fixed by attending to individual housekeeping details. In others, it is simply due to the nature of the industry in which the business operates.
And so, in addition to the risks posed by opening and nurturing a business, in dealing with transaction and customer conflicts and building a professional reputation, businesses and entrepreneurs must risk answering the objections of potential partners eager to avoid risk themselves. They must do so forthrightly and honestly and be prepared to accept that not all potential partners are prepared to undertake the risk of association.
High risk merchants in America thus have two choices. They can take a chance on banks and processing services that will offset the risk by imposing additional fees and limits to monthly transactions. Or they can seek out partnerships with lenders and processing services that specialize in understanding and offering solutions for businesses in traditionally high-risk industries. Making the right choice can mean the difference between success and failure.