Underwriting 101: Everything You Need to Know About Applying for a Merchant AccountPayments 101

Underwriting 101: Everything You Need to Know About Applying for a Merchant Account


It’s commonly said that the first rule of business is to stay in business. In order to do that, you need to be able to accept payments. In order to accept payments, you need a merchant account. And in order to get a merchant account, you need to go through a process called underwriting.

The underwriting process seems daunting for many businesses, but it doesn’t have to be. In this post, we’ll break down everything you need to know about applying for a merchant account — from what underwriters look for, to common mistakes that can trip up your application. By the time you’re finished reading, you’ll be ready to take on the underwriting process with confidence. So let’s get started!

What is underwriting?

Whenever you apply for a new account — whether it’s a business account or a personal credit card — the financial institution assesses the pros and cons of giving you more money. As long as the pros outweigh the cons, you’ll be approved.

When you apply for a merchant account, the underwriting process is specifically assessing your business’s eligibility as a merchant. The financial institution wants to ensure that all payments processed through the merchant account will go smoothly and securely for all parties involved (i.e. the bank, the business, and the customer).

Keep in mind that financial institutions can specialize in merchant accounts for different industries. One bank may deny you a merchant account, but a different one may approve your account. Knowing the necessary requirements ahead of time will help you prepare to answer tough questions and ensure you meet all legal obligations set by banks and card networks.

Understanding the underwriting process decreases the time it takes to get your merchant account approved and accepted by the bank. The faster you get approved, the faster your customers can pay for your goods or services.

What is the underwriting process?

The underwriting process looks at the history of your business, how payments will be processed, and other data that can impact finances (i.e. personal credit reports, etc.). The exact process can vary between different financial institutions, but it typically includes the following steps.

1. Completing an application

Be sure to properly fill out the application, as skipping any fields or leaving blanks could delay your request. If you are ever unsure of what information the bank needs, feel free to ask questions. The application will usually ask for the following information:

  • Business name
  • Business industry
  • Tax identification number
  • Identification of business owners and partners
  • Type of merchant account requested

2. Providing financial documents and/or bank statements

This helps the bank assess the financial stability of your business and determine the financial risk of supporting you. You will likely be asked to provide the following documents:

  • Business license
  • Business bank statements
  • Processing statements from current and previous processors
  • Proof of business ownership and physical location

3. Meeting any additional requirements set by the account provider

The financial institution may request further documentation in order to assess if they want to approve your merchant account. Most financial institutions follow Know Your Customer (KYC) requirements. This means you will likely have to prove your identity and address by providing a passport, driver’s license, or utility bill. This can be a frustrating, back-and-forth process. However, the faster you’re able to respond to requests the better.

4. Receiving either approval or denial of the application

After you’ve met all their requests, the financial institution will either approve or deny your application. As we mentioned earlier, different financial institutions provide merchant accounts for different industries. Don’t be discouraged if you’re rejected. Do some more research to find the right account for your business.

How does the underwriting process help your business?

It’s easy to feel like the underwriting process is only there to safeguard banks and other financial institutions. However, there are many ways this process helps your business as well, including the following.

1. Identify and resolve potential risks.

The underwriting process helps you identify and resolve any potential risks related to payment processing. Going through the application process ensures that all transactions will be secure and properly processed. This helps protect both your business and your customers from any fraudulent activity or data theft.

2. Determine potential growth blockers.

Financial institutions utilize underwriting as a way to look at where your business is now to help predict your financial standing in the future. You should utilize this process as an opportunity to do the same thing. While applying for a merchant account, you should be asking yourself the following questions:

  • What is the long-term vision and goal for your business?
  • What is the next stage of growth for your business?
  • Will the payment processor you’re applying to still work for your business at your next stage of growth? The stage after that?
  • What will it cost to change to another payment solution if this processor can’t scale with your business? How long will the transition take?

Thinking about these questions now will not only save you time and money, but also help you avoid anxiety and frustration down the road.

3. Find a partner not just a provider.

The underwriting process can actually tell you a lot about the financial institution you’re working with. If they provide clear instructions, respond to your questions promptly and professionally, and are invested in your overall success, that’s a pretty good indication that behavior will continue throughout the lifetime of your partnership.

However, if the financial institution is demanding, slow to respond, and is just unhelpful across the board, it’s unlikely that behavior will improve once they approve your merchant account.

The underwriting process is very much like an interview. The financial institution is trying to determine if they want to work with you. But you should also be determining if you want to work with that particular payment processor. You have a say in this partnership too. Don’t forget that.

Common mistakes to avoid

The underwriting process is just that: a process. In order to get approved for a merchant account, it’s important to avoid the following common mistakes that delay or derail your approval:

  • Withholding information — The underwriting process is one of the main ways financial institutions protect themselves from fraud and other financial infractions. The more transparency you can provide, the better the process goes.
  • Not properly registering your business — You’ll need to provide documentation that proves your business is legitimate. Make sure all your business and tax paperwork is in order before you start the underwriting process.
  • Being unresponsive — The underwriting process is not something you want to ignore. If the bank requests additional information you need to respond promptly. Again, the bank is trying to assess if your business is reliable. Unresponsiveness can raise unnecessary red flags.
  • Choosing the wrong financial institution — Not every bank provides merchant accounts for every business industry. Choosing a financial institution that doesn’t work with your industry will either get you repeatedly denied, or stuck with significantly higher fees and stricter terms of service.

Taking these factors into account during the before underwriting process can make sure that businesses get set up quickly with a merchant account that meets all their needs.

Tips to consider

Applying for a merchant account can be a lengthy process. Following these tips can help increase your chances of getting approved.

  • Be organized — Have all your documentation in order. This includes tax returns, bank statements, and business licenses. You’ll also want to organize any documentation from current and past payment processors.
  • Sign a personal guarantee — Signing a personal guarantee means you’re backing your merchant account with your personal finances. While this can be risky for you if your business fails, the personal guarantee makes it less risky for the financial institution which can increase the speed of your approval.
  • Improve your credit score — Some financial institutions will look at your personal credit score in addition to your business’ credit score. Higher scores are more appealing to underwriters. However, if that’s not possible, think of documentation that can prove your reliability despite a lower score (i.e. on-time payments, etc.)
  • Understand your business’ processing history — Have documentation that shows how much volume your business processes, as well as what type of products or services you sell.
  • Research the financial institution before you apply — Make sure you’re applying to a financial institution that works with your business size and industry. A little research upfront can save you weeks of work and disappointment.

The underwriting process is a way to make sure businesses can handle customer payments. Be sure your business meets the requirements set by the financial institution. Don’t forget to double check forms and follow instructions closely.

Are you struggling with understanding or preparing for the underwriting process while applying for your next merchant account? At Nexio we strive to keep it simple — reach out today and one of our team members will be more than happy to help you out!

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