What Percent Do You Pay on High-Risk Merchant Accounts: The Complete Guide

High-risk merchant accounts are a lucrative investment opportunity for businesses with high capital requirements and no access to credit. These types of accounts are often reserved for large business finance providers who can absorb the additional risk required to lend money to such financial institutions. Smaller businesses without access to growth capital or established relationships within the banking sector face difficulty securing funding from other sources. High-risk merchant accounts typically require a higher deposit than standard bank accounts, and they carry higher fees as well. Lending money to a small business requires the lender to screen out risky borrowers who are likely to default on their loans. To achieve this, banks consider various factors such as how much equity the business has in its operations, how much it will cost the company if it cannot repay its loans, and how long it will take for repayment. This article highlights the different types of high-risk merchant account fees, how much they charge, and some strategies you can use to lower your costs or avoid them altogether.

Credit Card Fees

Credit card fees are one of the most significant expenses associated with high-risk merchant accounts. The specific fee varies depending on the type of account and processor, but is typically between 1.5 and 3 percent of the total transaction amount. For example, if a customer withdraws $10,000 from their high-risk merchant account using their credit card, they will be charged between $150 and $300 in credit card fees.

APAC Fees

APAC fees are the most common type of fee associated with high-risk merchant accounts. APAC stands for Asia Pacific, which is a region that includes China, Hong Kong, and Japan. This region is responsible for over 80 percent of all high-risk merchant account transactions. APAC fees are typically charged monthly and range from 0.5 percent to 1.0 percent per month on your total merchant account balance. In contrast, other kinds of high-risk merchant accounts charge a percentage of the total funds securing your account based on the assets you maintain in their respective financial institutions. For example, if you have $10,000 in your account and another $1 million in assets with your bank, you would only be charged 1% on your entire balance since there is no additional risk involved with servicing this kind of business loan. Some businesses may also find themselves paying a commission or service fee when they use their high-risk merchant account to process transactions that exceed certain limits each month or year. This fee can range from 2% to 5%.

ACH Fees

When you use a high-risk merchant account, your business will incur ACH fees as part of the transaction. ACH is an acronym for Automated Clearing House, which is what banks often use to send and receive payments in a timely manner. If a payment doesn’t clear for a certain period of time, the bank will debit your account with an ACH fee. The fee rates for each type of ACH vary based on the size and category of the business that initiated the payment. Small businesses are charged lower fees than large businesses.

Depositor Duties

The first step in securing an account with a high-risk merchant bank is ensuring that your business matches the criteria set forth by the bank. Fortunately, these criteria are fairly straightforward. To get to this point, you will need to provide information on your company and its financial stability. Businesses must also be able to provide proof of their creditworthiness, like a letter from a major lender, commercial loan statement from a bank, or a copy of the last two years’ tax returns. Once your business has been accepted for consideration for an account with a high-risk merchant bank, there are three major duties that all depositors must perform: 1) You need to establish unchallenged ownership of the business; 2) You need to verify personal income and assets; and 3) You need to sign an indemnity agreement with the bank.

Requirement Fulfillment Fee

A requirement fulfillment fee is a fee that merchants pay for every customer credit card transaction. This type of fee is charged by the merchant account provider to cover the cost of fulfilling customer orders, processing customer payments, and fraud protection. It typically ranges from 0.5-2% of each sale, but it can vary depending on the provider.

Other High Risk Merchant Account Fees

Fees that are charged by the bank to cover administrative costs and credit risk include any fees that are associated with opening a new account, such as closing fee; monthly account service fee; annual minimum balance fee; annual wire transfer fee (for high-risk merchant accounts); and cash advance interest. In addition, banks may charge higher rates when there is additional risk involved. High-risk merchant accounts have higher fees than standard bank accounts. But you can lower these fees, or avoid them altogether, in various ways: 1. Make sure your business has a lot of equity in its assets 2. Make sure your business will be able to meet its financial obligations if it cannot repay its loans 3. Consider using a co-signer on your loan

Summary

High-risk merchant accounts are a lucrative investment opportunity for businesses with high capital requirements. These types of accounts are often reserved for large business finance providers who can absorb the additional risk required to lend money to such financial institutions. Smaller businesses without access to growth capital or established relationships within the banking sector face difficulty securing funding from other sources. High-risk merchant accounts typically require a higher deposit than standard bank accounts, and they carry higher fees as well.

FAQ’s

How do high-risk merchant accounts differ from standard bank accounts?

High-risk merchant accounts are a lucrative investment opportunity for businesses with high capital requirements and no access to credit. These types of accounts are often reserved for large business finance providers who can absorb the additional risk required to lend money to such financial institutions. Smaller businesses without access to growth capital or established relationships within the banking sector face difficulty securing funding from other sources. High-risk merchant accounts typically require a higher deposit than standard bank accounts, and they carry higher fees as well. These types of accounts enable businesses to accept credit cards directly from the customer, bypassing the merchant bank. The advantage is that companies are able to collect immediate revenue from credit card processing fees. However, high-risk merchant accounts carry a greater degree of risk because they are typically not FDIC insured. This means that if the business experiences any financial losses, they would be responsible for repayment alone. Additionally, high-risk merchant accounts do not offer account holders as many payment options as standard bank accounts. A limited number of credit and debit cards commonly accepted by high-risk merchant accounts include Mastercards and Amex brand cards only.

What are the benefits of high-risk merchant accounts?

High-risk merchant accounts are a lucrative investment opportunity for businesses with high capital requirements and no access to credit. These types of accounts are often reserved for large business finance providers who can absorb the additional risk required to lend money to such financial institutions. Smaller businesses without access to growth capital or established relationships within the banking sector face difficulty securing funding from other sources. High-risk merchant accounts typically require a higher deposit than standard bank accounts, and they carry higher fees as well.

High-risk merchant accounts provide many benefits for businesses looking for funding: 1. Higher Deposit requirement - High-risk merchant accounts usually require higher deposits than standard bank accounts, and they carry higher fees as well. 2. Reduced Credit Limits - High-risk merchant accounts typically have much lower credit limits than standard bank accounts. 3. Increased Processing Fees - High-risk merchant accounts typically charge higher processing fees than standard bank accounts. 4. Riskier Terms - High-risk merchant accounts often come with riskier terms and require more stringent qualification requirements than standard bank accounts do. 5. Access to Lower Interest Rates - High-risk merchant accounts often offer much lower interest rates than standard bank accounts do.

What are the risks of high-risk merchant accounts?

High-risk merchant accounts are a lucrative investment opportunity for businesses with high capital requirements and no access to credit. These types of accounts are often reserved for large business finance providers who can absorb the additional risk required to lend money to such financial institutions. Smaller businesses without access to growth capital or established relationships within the banking sector face difficulty securing funding from other sources. High-risk merchant accounts typically require a higher deposit than standard bank accounts, and they carry higher fees as well.

High-risk merchant accounts offer businesses greater flexibility in managing their financial affairs and can provide them with competitive financing rates. However, high-risk merchant accounts are not without their risks. If the business does not meet their minimum account balances or is unable to pay their monthly service fees, they may be suspended or banned from the account provider’s platform. If that happens, it could take weeks or months to reestablish their account status. High-risk merchant accounts also come with more stringent credit requirements than regular bank accounts. Credit scores typically need to be above 600 in order to qualify for high-risk merchant account financing, which can make it difficult for small businesses to obtain the financing they need.