What Graduation Season Means for Small Business Credit Card Processing

It’s graduation season, and, being located in the Greater Boston area where there are more than 100 colleges and universities within a 50-mile radius, it is a special time.

For payment processors, that is.

The next 6-12 months is when startup enterprises emerge, particularly in tech hubs such as Boston and even Manchester and Portsmouth, N.H., where we call home. These are startups that need small business credit card processing solutions, which Instabill offers (and not everybody else does).

Small Business Credit Card Processing for Startups: Sometimes banks say ‘no’

Startup businesses have something working against them that often leads to a few rejections from acquiring banks when seeking credit card processing for small businesses: Lack of history in payment processing, perceived low capital and potential instability or volatility.

There are acquiring banks that simply refuse to work with startups because they understandably value history and financials above all other criteria. It’s not personal, just a fact. To buffer banks’ fears of providing payment solutions for startups, merchants can try several things, such as:

• Offer personal credit history during the application process
• Accept check solutions while waiting for merchant account approval
• Become PCI compliant
• A well-thought and organized business plan

Or, startup merchants should seek a payment processor which specializes in high risk businesses and embraces startups.

Payment Processing for Startups: 2 things to expect

Startup and new small businesses must first understand that banks need to protect themselves from a number of potential hazards, mostly fraud and chargebacks. Therefore, startup merchants may face two scenarios when searching for credit card processing solutions:

• Rolling Reserve: A rolling reserve occurs when the bank holds a small percentage of a merchant’s revenue for a period of time, but pays it back over a period of (usually) six months.
• Higher Rates: Again, in the name of protection from fraud and chargebacks, an acquiring bank and/or payment service provider may charge a startup slightly higher processing rates.

The good news for startups and new small businesses

Being hit with a reserve and higher processing rates, especially for a new business, can sting a bit. After eight months to one year, however, when a business has proven to be profitable and stable, the merchant usually can renegotiate his fees.

Merchants need to keep in mind that higher fees and reserves are merely part of the process, nothing more. Talk to an Instabill merchant account manager about our small business credit card processing solutions at 1-800-530-2444.