17 July 2009

Setting Up a Merchant Account Without a Personal Guarantor

To set up a merchant account without a personal guarantor, the applicant can use his business’ financial strength instead of a personal guarantee, present a letter of credit, put some of his funds into reserve, or find a merchant account provider that does not require a personal guarantor.

In setting up a merchant account, applicants will notice that most merchant account providers are now requiring a personal guarantee. A personal guarantee means that at the time when the merchant account holder and his business cannot meet the obligations in sustaining the merchant account, the merchant account provider has the right to pursue the person, who signed as the ‘guarantor’, to answer those obligations.

A personal guarantor can be either a close friend or one of the business’ owners with a satisfactory credit background. Being a guarantor is very risky that is why many retailers would like to avoid that as much as possible when acquiring a merchant account. Fortunately, a merchant can apply for a merchant account even without a personal guarantor. Here is how:

Back up your application with your business’ financial strength

Emphasize that your business has very good financial strength when setting up a merchant account, instead of utilizing ones personal financial strength or another's. This is, of course, if the business your handling has strong financial backgrounds. This means that your business have been operating for at least two or more years and with very satisfactory credit history. Your business should also have the documentations, like financial statements and balance sheets prepared by another party, to exhibit and prove that your business is indeed financially capable to maintain a merchant account. In this way, if your business actually has good ratings, a personal guarantor wouldn’t be necessary.

Present a letter of credit

This is another option for merchant account applicants to use if they wish not to have a personal guarantor in applying for a merchant account. A letter of credit is actually an agreement or a binding document requested by the applicant from his bank. This is to guarantee the merchant account provider that the applicant can pay, in cases when financial problems arise between the merchant account and the business. When this happens, the merchant account provider will only have to invoke the letter and receive the money. The money paid will then be credited to the applicant or merchant account holder’s account as a loan. The letter of credit can only be invoked when the account holder owes some money to the merchant account provider.

Put some of your funds into reserve

Putting some of your funds into reserve is another way to set up a merchant account without a personal guarantor, that is if the above-mentioned are not possible. You will simply have to allow your merchant account provider to hold some of your funds. In that way, when something goes wrong with the business and the merchant account, the payment is already on their hands.

Look for other merchant account providers

There are merchant account providers that are not too strict regarding their applicants’ requirements. Shop around and maybe you can find a provider that will not require a personal guarantor to set up a merchant account.

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