Whether you’re just opening a new small business, or you’ve had one for years, you need a merchant account to process payments.
Your merchant account will allow you to not only process payments for your business, but it gives that money a place to go.
That’s really important.
Once money hits your merchant account, it is then transferred to your business bank account, where you have access to it.
Small businesses don’t necessarily have to have merchant accounts - there are other options - but they’re not preferable, and if you keep reading, we’ll talk about why.
For lack of a better explanation, merchant account providers do just that - they provide merchant accounts.
These accounts make it possible for merchants (aka business owners like yourself) to process payments, thereby directing that money into your merchant account, and eventually, into your business bank account.
Simple.
As a small business owner, it’s in your best interest to accept as many forms of payment as you possibly can.
There are a lot of payment methods out there, but these are the ones people tend to like best:
There are plenty more, but you get the idea.
You definitely want to avoid only accepting cash, which can cost you a lot of business.
The right small business merchant account gives you a lot more options, including being able to accept payments in your brick and mortar store (if you have one), as well as online.
Now that you know about merchant accounts, let’s talk about an alternative - payment aggregators.
The term,
payment aggregator
refers to a company like PayPal or Stripe, which you may be familiar with, instead of a merchant account and/or payment processing company.
A payment aggregator is a way to process a merchant’s payments under one “master” merchant account.
At first, it sounds great! And it seems like choosing a payment aggregator offers a lot of benefits, such as:
But there’s a lot they don’t tell you.
Here are the cons to choosing a payment aggregator over a small business merchant account provider:
With the right merchant account provider, none of this is a concern.
Any time a merchant account provider approves a merchant’s application for payment processing, they are assuming some level of risk.
They assume this risk because if a customer wants a refund (which they can ask for anytime within 6 months of the purchase date), the bank has to issue that refund.
The bank needs to know that it can recoup those funds from you.
That’s the purpose of underwriting and why applying for a merchant account is a process with multiple steps.
If your small business is a barbershop on the corner, then being able to accept more than one currency for payment probably isn’t a big deal for you.
But it is a big deal to the person who just opened up a jewelry store down the street, but who also wants to sell their products online.
If your small business has aspirations of worldwide domination (no exaggeration there at all), a merchant account is the way to go.
One thing is for sure - when customers have the option to pay with a credit card, they tend to spend more money.
That’s a fact that’s been proven by research.
If a person who visits your small business spends $20 more than they would have if they had to pay in cash, and that happens over and over again, it translates into a lot of growth for your business.
Remember bad checks?
You’d accept a check from a customer, having absolutely no idea whether they had the funds to back it up. Then a few days later, your bank would slap you with a fee and no money for what you sold.
Terrible. And that’s why a lot of merchants stopped accepting checks.
We’ve learned a thing or two about how to solve this problem over the years.
Today, physical checks can be instantly transformed into electronic checks with the right merchant account providers. If a check is bad, you’ll know it right away - before the customer leaves your store.
This is what it all boils down to, isn’t it?
Now more than ever, people want options. They know there are a lot of ways to pay (see the list above), and they want to take full advantage of that list.
When you consider the fact that 1 out of 3 Americans has their own side hustle, it’s good to be able to accept multiple forms of payment because their money could be anywhere, like in a mobile wallet account.
It’s good to be aware of the fees you’ll be paying for your merchant account.
Keep in mind that every small business merchant services provider is different, but here’s a quick rundown of what you might see:
This could be a much longer list, but here are some small businesses that need merchant accounts:
As you’ll soon find out, you’ll have a lot of options for merchant account providers for your small business.
But how do you go about choosing the best one to meet your needs? Here’s a checklist.
Now that you’ve gotten the basics down, it’s time to open your small business merchant account. Here’s what you need to know.
Most companies have done a good job of streamlining the application process.
We’ve seen everything from a 1-minute application that you fill out online to over-the-phone applications.
Once you apply, you’ll undoubtedly be given a list of documents and other information that you’ll need to submit. Here’s a list:
Once you have everything they’ve requested, it’s time to submit. But first...
Check over everything to ensure that the information you’re providing is complete.
It doesn’t hurt to add some additional info either. For instance, have you invested $100K of your own money into your business?
Let them know that. It shows them that you’re serious.
Do you have poor credit? Does your business? Have you filed for bankruptcy in the past?
These are just examples of things you’ll want to be upfront and honest about.
Here’s the bottom line - the underwriter will find out about
everything
. It’s best if you tell them ahead of time to show that you’re honest and trustworthy.
Are you unsure about providing information about your grandmother’s residence 20 years ago? It doesn’t matter. Give it to the underwriter anyway.
Hint - no one will ask you for that, but they may ask you for things that don’t quite make sense. But there’s a reason. Give it to them, and don’t ask why they need it.
You don’t want to downplay your sales volume. Let them know how much you expect to process each month.
Are you about to release a new, eagerly-anticipated product? Tell them about that too.
Tell them everything.
And when the situation changes, tell them about that too.
The hardest part is waiting to see if your merchant account will get approved.
Fortunately, you probably won’t have to wait very long. A lot of merchant account providers can approve accounts in as little as 72 hours; or even faster if you’re considered low-risk.
It’s OK to ask how long it will take to get approved. Then busy yourself until you get the word that you’re good to go.