Preparing for Risk: Points to Know About High-risk Businesses

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When starting a business, there are many things that you have to consider. Yes, you have your ideas and plans, but these are not guaranteed to start a company. But you should be well aware of these other things. Credit history, assets, capital strength, and feasibility are some of the important factors that you and the bank will look into if you’re seeking a business loan.

Risk is one of the factors to determine whether your loan will be approved. But don’t worry if your business proposal is seen as something that is not too safe. There are banks that offer high-risk credit card processing in case you reach this point.

What does a high-risk business mean anyway? Here are some points that you have to ponder:

Defining High Risk

Just how does one determine if a business is a high-risk one? To know better, understand the definition of the word “risk” itself. Risk is exposing something to errors, failures, or losses. Applying this to business, you can deduce that there would be situations or perceptions that could lead you to this determination. Here are some of them:

  • Accepting credit card payments for high-priced items
  • The legality of the business is in a gray area. Examples would be adult websites, questionable marketing schemes, and gambling establishments.
  • The products you are selling can be dangerous, such as weapons and their accessories.

As you can see, these examples put not only your business at risk but also your potential customers and financial institution. There’s a big chance for money loss here, as these can be easily disputed and reversed. On the customer side, there could be a chance where they will regret their decision and not even get back their money. For the bank, there would be chances where they need to perform chargebacks. Also, they could be approving a business loan that has a big chance of not being paid back on time.

Chargebacks Versus Refunds

Since the term “chargeback” is mentioned, it’s a good time to define it. It’s one important detail that you need to know when assessing the business you are getting into. A chargeback is when the money is sent back to the payer by the bank. This is opposed to refunds, to which it is the merchant who is returning the payment to the buyer. Chargebacks are perceived to be more serious because you are basically asking the bank to correct transaction mistakes. Having these would be a blemish in their records.

Not All Hope Is Lost

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If your business has been deemed high risk, do not lose hope. You can still get approval by proving that you can make the business work. If you know well that what you have is clearly legal and you have contingency plans, present them to your financial officer. It also would not hurt if you had substantial capital. That way, you can let them know that you are leaving no stone unturned and are ready should problems arise.

Armed with this knowledge, you should be confident to have your business up and running. As long as you have studied hard about it and are prepared for the worst, you should be able to put it up and hopefully steer it toward success.

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