Archive for March, 2025

When applying for a merchant account most small and medium-sized merchants will notice that a personal guarantee is required to establish the merchant account. A personal guarantee basically says that if the business cannot fulfill its obligations to the processing bank then the processing bank can legally pursue the guarantor to fulfill those obligations. This basically means if your business owes the processor money and it does not or cannot pay then the bank can come after the guarantor seeking those funds.

The reason why the processing bank does this is because of the high risk they are exposed to due to the nature of their business. If a new merchant commits fraud or just mismanagements their business and merchant account, the processing bank can be on the hook for a large sum of money. Naturally they wish to protect them from this scenario as best they can.

But what if a merchant does not wish to give a personal guarantee? What if they started their corporation with the explicit intent of separating personal assets from business assets? What are they to do? Some merchant account providers will allow you to use alternative forms of guarantees in place of a personal guarantee. These options include:

1. A Corporate Resolution

   Instead of using your personal financial strength to back up your business, you use your business’ financial strength instead. To do this your business must be in a strong financial position. This typically means you have been in business for at least one year, although two or more is typically required, and have documentation to show your business’ financial strength. Typical examples of satisfactory documentation include balance sheets and any financial statements prepared by a third party.

2. Provide a Letter of Credit

   A letter of credit basically is money that your bank promises to give your merchant account provider at a future date up to a certain amount if certain criteria are met (which are detailed in the letter). Basically, if you owe the processing bank money they can invoke this letter of credit and receive that money. This in turn essentially turns into a loan from your bank to you. It’s basically allows the processor to have a guarantee that funds will be available to them if they need it but you don’t actually have to take out a loan or front any money. As long as you don’t owe your processor money the letter of credit is never invoked.

3. A Reserve

   In cases where the above two options are not practical or possible, simply allowing the processing bank to hold some of your funds in reserve may be enough to allow you to process without a personal guarantee. Basically if they have your money, they know they can get to it if they ever need. The amount the processing bank will want to hold will depend on many factors but it all boils down to how much exposure they calculate they will be subject to with your merchant account. Funds held in reserve are typically held for six months after a merchant account is closed although it is possible that can be extended depending on the product or service being offered.

Keep in mind not all processors offer these alternative although most offer at least one of them.

Technorati Tags: merchant account, merchant services, reserve, letter of credit, processing bank

A common question asked online is how to accept credit card payments at a fair or market. Generally when this question is asked it is implied that the merchant will be somewhere where they can’t bring a traditional credit card terminal because they do not have access to a phone line or electricity. Naturally this represents special circumstances under which the merchant has to operate.

Naturally to get started the merchant will need a merchant account. This is discussed here and online in great detail so we won’t go into detail here. Naturally anyone needing help with that can ask for it in our forums.

There are two ways of doing this:

1. Use a wireless terminal

   A wireless terminal works just like a cell phone. Anywhere you can make a phone call you can process credit cards. Wireless terminals are self sufficient as they do not need a telephone line (they are wireless) or an external source of electricity as they are battery powered. This means you can bring it to your stand and process just as if you were n a typical retail store.

   This is great as it gives you immediate feedback about the transaction. You can complete the sale with the same level of confidence as if you really did have a true retail store. Plus by swiping the credit card through a credit card terminal you qualify for the lowest rates available from the major credit card issuers. The downside is the cost of wireless terminals. The Nurit 8000 (probably the best wireless solution out there) will run you close to $700. Plus you must pay wireless fees just like you do for your cell phone. Usually it is a flat rate per month of around $20 - $25. This is in addition to the processing fees you are already paying. Plus if you are located someone where their is no wireless signal you cannot use it. So if you travel frequently to remote locations this may not be a reliable solution for you.

2. Use a manual imprinter

   An alternative to high tech wireless terminals is the old fashioned manual imprinter. You might think we are pulling one on you but anyone who is in the credit card processing industry knows that not only have the not gone out of use but they are as important as ever. And for mobile and remote merchants they may provide the best solution to accepting credit cards.

   What the merchant would do is imprint their customers’ credit card orders at the fair/market and have them sign the imprinted credit card slip. The merchant will give them a copy as a receipt and take theirs back to your home or office. You will then manual key enter your orders into your basic credit card terminal so you can receive payment. For large or suspicious orders the merchant can call for a voice authorization on their cell phone to verify and freeze the funds on their credit card. You then can claim those funds from a basic terminal like the Verifone Trans 380 that you have back your home, office, or even hotel room.

   This is great because your upfront costs are lower then a wireless solution. Plus this works anywhere as you are not dependent on any external forms of power or communication. The downside is that you do not get an immediate response for your transactions and it is possible for a sale to be declined long after the customer is gone. Plus, if you choose to make frequent phone calls for approval, you will be charged a fee around 60¢ for each call. That is why this should be reserved for large or suspicious orders.

For mobile merchants who are not accepting credit cards in a typical environment there are no ideal solutions. But they are choices available and both are viable solutions. Do the math and decide which is best for you.

Technorati Tags: wirelss terminal, accept credit cards, Nurit 8000, Verifone, Tranz 380.