Is it possible to obtain a merchant account even after filing bankruptcy

With the world economy in doldrums for the last few years, millions and millions of businesses were rendered bankrupt. So, does this mean it’s all over for them? Not yet, bankrupt businesses can apply for high risk merchant accounts and once again get their business back on its feet.

Some caution and careful stipulation while filing a high risk merchant account will surely make the application process less complicated:

Bad credit and bankruptcy

It’s a known fact that businesses with a well off financial status can easily obtain a merchant account, but at the same time, even during the dismal phases a business is eligible for applying for a merchant account. Remember that the date of filing bankruptcy plays an important role. According to the Merchant council, if a business is in the active stage of bankruptcy, there are more chances that the application will be rejected. But, in case your bankruptcy has been discharged, and high risk merchant service providers are assured that this account is a step forward to re-establishing business, the chances of the application approval are relatively brighter.  

 Limitations of high risk merchant accounts for bankruptcy

Although, High risk accounts are available to risky businesses including the ones that are bankrupt, merchants impose a few restrictions on them to remain on the safe side. In avoiding defaults of any kind, they play around with the ACH and the rolling reserves.

As far as ACH is concerned, the acquiring banks will delay the transfer of credit card payments into the bank account of the merchant.  Similarly, when we talk about rolling services, merchants will hold back a pre-determined amount of the cash sales and keep them in an interest bearing account in order to minimize the risk of default. 

Pricing of merchant accounts for bankruptcy

High risk credit card processing is relatively more expensive than regular card processing for obvious reasons. Higher the business risk, the higher the price it will cost.  

There are two main systems of pricing here – interchange pricing and tiered pricing. Under interchange pricing, a flat fee along with fixed rate per transaction determines the price. Whereas, tiered pricing divides the transactions into categories, based on the interchange fee issued, and fixes different charges for each category. 

Besides determining this direct fee, bankrupt businesses are expected to pay higher surcharges and other add-on fee.

Are there any alternatives to high risk merchant accounts?

Fling a bankruptcy or having a bad credit history is definitely going to pose difficulties in applying for a merchant account. Some banks ask for cosigners, and it is often that anyone agrees to sign up for a bankrupt business. Another way out is to not apply for a merchant account at all, but use other online services such as PayPal and Google Checkout. But, these have their own limitations. For instance, PayPal does not run a credit check for such services it provides to online businesses.

The above makes it clear that bankrupt businesses can indeed apply for merchant accounts from domestic or offshore merchant account providers, but it will come at some added cost and inconvenience.