Starting a business and growing it into a success is part of the American dream. Business owners that found and run successful businesses get to be their own boss and create jobs for others with a chance to make an impact within their industry. However, all businesses must start from somewhere and they need reliable merchant account services to be able to accept and process their first payments.
No matter what type of business your startup is, it is likely considered high-risk. There are several reasons why startups are considered high-risk, including inexperience of the business owner, high chargebacks, and the high failure rate of startup businesses. For these reasons, traditional payment processors and banks are hesitant to work with startups which makes it difficult to secure a merchant account for new businesses. Startups still need to work with a reliable merchant services provider to receive and process payments. There are payment processors that can provide merchant account services for startups to help them get their business off the ground.
In this guide, we will discuss why startup businesses are considered a high-risk industry and how startup businesses can get reliable merchant account services. First MCS provides merchant services for hard to place merchant accounts in the Chicago, IL area and we can help startup businesses.
Why are Startup Businesses Considered High-Risk?
The general uncertainty is the main reason why startups are considered high-risk. To established banks and merchant service providers, new startup businesses are a gamble because it is difficult to tell if they will be successful. This is especially true of startups with business owners with little to no experience running a business. There is also a risk of chargebacks as the services or products provided by new businesses may not be of the best quality right away.
The following are the main reasons why startup businesses are considered high-risk:
- Inexperienced owners: Startup businesses need effective leadership to get off the ground and become a successful business. Traditional banks and payment processors are hesitant to work with first time business owners as their inexperience may be a detriment to the growth of their business.
- High startup failure rate: Around 90 percent of startup businesses fail across industries as there are many things that need to go right for a business to become successful. The high failure rate discourages traditional banks from working with startups.
- Inadequate preparation: Starting a business requires extensive planning to ensure you are ready for launch. However, poor planning is a common problem with startups which is another reason for traditional banks and payment processors to avoid working with them.
- Lack of financial history: Banks prefer to work with businesses that can demonstrate a strong financial history and consistent income. A startup has no financial history, and it is virtually impossible to predict their future income, making them a gamble.
- Chargebacks: Chargebacks can be a problem with startups as their products or services may not live up to expectations right away. It may take time for a business to improve and perfect their offerings after launch. In the meantime, customers whose expectations are not met may request a refund from the bank or credit card.
How to Reduce Chargebacks
One of the things startups can do to secure merchant account services from a reliable payment processor is implement steps to reduce chargebacks. While payment processors that work with high-risk businesses have a slightly higher tolerance for chargeback ratios than traditional banks, they still prefer to work with businesses that are taking action to reduce chargebacks.
The following are steps you can take with your startup that will help you reduce chargebacks:
- Secure your website: The website for your business should be secured and encrypted to verify online payments and protect customer data. You should also use any tools available to verify the credit card owner to reduce the risk of fraudulent payments and the chargebacks that result.
- Clear and transparent policies: Make sure your descriptions of your products or services are accurate so customers understand what to expect, and clearly state your refund policies.
- Offer refund alternatives: If possible, offer gift cards or store credit as alternatives to credit card refunds. This can help prevent a chargeback and ensure that the customer will return to your business.
- Provide follow up order information: After a purchase is made, send the customer a follow up email that contains the details of the order, tracking information, and your contact information to report a problem or request a refund.
- Provide excellent customer service: Providing good customer service will make your customers more satisfied with their experience with your business and less likely to request a chargeback.
Taking these actions to prevent chargebacks will make your startup more appealing to merchant service providers willing to work with new businesses. A reputable merchant service provider will also provide additional assistance to reduce your chargeback ratio.
How to Get a Merchant Account for Your Startup Business
Despite being in the high-risk category, startup businesses can find payment processors to work with like First MCS that have experience working with hard to place merchant accounts. You can help increase your chances of securing a merchant account by taking the following actions:
- Buy business insurance: Businesses in all industries should be properly insured to protect from losses and liabilities that could lead to lawsuits. Having your business insured helps your chances of getting a merchant account.
- Register your business: Your business must be properly registered with an Employer Identification Number (EIN) to be legitimate in the eyes of the state.
- Obtain a license: If your industry requires your business to obtain a specific license, make sure you get that license. Being properly licensed keeps your business in compliance with the law.
- Reduce chargebacks: Payment processors like First MCS prefer to work with businesses that take the right actions to reduce their chargebacks. Make sure your business is taking the actions described above to prevent chargebacks.
Hard to Place Merchant Account Services from First MCS
All businesses must start from somewhere and it is necessary for startups to work with a merchant service provider to safely and effectively process payments. Fortunately, startups can work with payment processors like First MCS to launch and grow their new business.
First MCS provides hard to place merchant account services for startup businesses and other high-risk businesses. We provide point of sale (POS) systems with the essential equipment and apps for startups to accept and process in-person and online payments. You can also call us 24/7 for support if you have a problem so we can quickly resolve the issue and minimize downtime.
You can call First MCS at (866) 673-3099 for more about how we can help your startup in the Chicago, IL area.