Receiving Merchant Accounts Despite Bad Credit?

Establishing a bad credit merchant account is next to possible given many lenders’ reluctance to extend credit terms to suspect or bad risks. The creation of a merchant account by a business gives it access to specifically tailored programs and services designed to facilitate loans and access to other forms of business capital. Having bad credit eliminates the possibility of having access to establishing a merchant loan.

There may be websites or offers that discuss the possibility of establishing a business merchant account with bad credit. Such offers are untrue or are wrought with conditions that put a business with bad credit in a worse not better position. The charges, fees, terms and conditions of the accounts are not favorable and may not help a business with bad credit improve their credit situation.

Address Credit Situation

A business facing a situation where the need to establish a merchant account but has bad credit should work on addressing their credit situation. Seeking non-traditional institutions may not be the best option and can lead to excessive charges and other abusive practices against the business. Addressing credit concerns by looking at the business’s credit rating, outstanding debt, debt leveraging and other measures can help the business improve its standing and become a better risk for receiving a merchant account.

Debt Leveraging

Debt leveraging is easy to address in that it is a measure of the business’s equity in relationship to its liabilities. If the ratio between the two is 1 or less, the business is in good position. If the number is 1-1/2 or higher, the business may be experiencing financial difficulties and will not be in a position to receive a merchant account. Lowering the debt/liabilities of the business or increasing the business’s equity should help improve its debt leveraging ratio.

Raising Capital

The business can consider taking on a cosigner or raising capital through a private or public stock offering in order to improve its capital position. Such moves may give the business more net worth and place it in a better position for a merchant account. This may require the business to give up some of its ownership in order to improve its outlook and appearance to a merchant bank but may be worth it long term.

Bad credit limits a business’s ability to operate and function effectively. Taking proactive steps to address bad credit and reduce its liabilities only helps improve the business’s prospects for obtaining a merchant account.