Business

Should You Own A Credit Card If You Run A High-Risk Business?

Importance Of Credit Cards For A High-Risk Business

In a highly competitive economy, there are always several factors that determine the success or failure of any business. Business owners must have a thorough knowledge of these determinants. It is necessary to obtain a merchant account with any financial institution. If a company is in a financial risk category, it becomes troublesome for them to be eligible for a standard merchant account or appropriate payment processing system. Financial risk refers to the probability of a business incurring various risks concerning the company’s financial transactions. It involves the loss of money either in investments or capital or even in the form of losing customers who could generate business.

However, there is always a way out. Banks always extend credit and loan services to businesses based on their risk category. Credit card providers determine the risk category of a business based on the assessment of several factors.

Classification of the business depends on industry type, rate of chargebacks, credit history, etc. Some companies are known as low-risk businesses as they involve minimum financial failure rates, while some are called high-risk businesses. According to payment processors, these businesses have a higher probability of monetary risks. Let us discuss what a high-risk business and high risk credit card processing is.

All About High-Risk Businesses

These businesses may either operate in a high-risk industry or generate a higher risk of financial failure. A high-risk business is considered at risk of a higher number of chargebacks or business frauds by any financial institution. These companies rarely get proper payment channels, and even if they do, they usually have to pay a lot more than standard businesses. They have to maintain a high-risk merchant account with a financial institution to conduct their financial transactions.

Using a high-risk merchant account means their account maintenance charges are much more than other account types. There is a limited number of payment options that these companies can offer to their customers. These businesses also find it challenging to obtain lenders or payment processing options. There are several reasons for a company to fall under a high-risk category. Some are high fraud rate, number of transactions every month, higher turnover rate, legal and government policies regarding the products sold, etc.

Information About Credit Cards 

A bank or other financial institution issues a credit card as a payment instrument. The company provides a line of credit to the card owner for payment purposes or for cash advance purposes. Credit cards allow consumers to purchase with borrowed funds and pay the fund later on with an interest rate already set before the card’s issuance. They have a universal design but sometimes may come in a customized variation. Each credit card has a 16-digit unique number. It has an expiration date and comes with a credit limit for the customer. A standard credit card has facilities like borrowing funds, making payments, money transfers, etc. They have minimal or no annual maintenance fee. Several credit card processors provide premium credit cards, with facilities like access to exclusive places such as airport lounges, special events, traveling concessions, etc. They usually come with a higher annual maintenance fee.

Credit cards can be consumer credit cards or business credit cards. Specialized credit cards that serve the financial transactions of a registered business are known as business credit cards. These cards are only for business purposes and offer multiple business-oriented features for their customers, such as higher credit limits, protection in bulk payments, cashback offers, etc. Sometimes, credit card providers and other financial institutions categorize a business as high-risk if it works in a financially dangerous industry that is inclined to high chargeback rates. So, they don’t want to provide the services or charge a higher amount for them. However, owning a credit card for a high-risk business owner can benefit. Let us see how.

 

Perks Of Owning A Credit Card While Being A High-Risk Business Owner

The benefits of owning a credit card by high-risk business owners are as follows:

  • Safer Transactions: Credit cards provide a safer transaction process than debit cards. As high-risk businesses have bulk transactions and a higher possibility of financial fraud, credit cards give the required encryption and ensure that the company has protection against fraud. One can keep an eye on every transaction made through the card as it requires authorization. One can also dispute if they notice any unusual payment activity or against any billing error.
  • More Working Capital: Credit cards provide higher working capital for the business owners, helping them retain maximum control over the equity shares of their business. They can single-handedly fund themselves with the help of a credit card. It also helps in cases where sales are low, the company requires extra monetary aid to bring some changes, or the business owner needs a collateral-free line of credit.
  • Flexible EMI: EMIs help business owners to purchase something with a credit card and return the borrowed money part by part. Most credit cards for high-risk businesses provide a flexible EMI cycle, which is a positive point. The EMI facility enhances the affordability of the high-risk business owner and helps them in bulk transactions at a single time. It decreases the economic load at one time due to multiple divisions of the repayable amount.
  • Dedicated Payment Support Team: Payments done with a credit card have a multifold procedure and involve a lot of parties. In such scenarios, something can go wrong, especially in bulk transactions. Credit card providers have a dedicated payment support team that works round the clock to ensure all the transactions are secure, encrypted, adequately authorized, and completed. They also help sort out customer grievances and disputes arising from any fraudulent activity or unauthorized transaction.

Conclusion

There are adequate reasons for a high-risk business to opt for a credit card. Business credit cards can help build a good credit history for the business and provide working capital for the owners. This capital is essential for business owners who want to retain maximum control over their company interests. In addition, there are several reward facilities and cashback opportunities for cardholders. Many other bonus perks are also available, making possession of a credit card for high-risk business owners a lucrative decision.

Abdul Razzaq

Abdul Razzaq is a freelance writer, digital marketer, tech enthusiast and, educationist from Pakistan. He runs Geekydecade (a Business Marketing Blog) to spread business and marketing awareness among the masses.

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