A business is considered high-risk if it meets one or both of the following conditions: a significant risk of financial failure exists, and it is a high-risk industry due to working conditions. These two characteristics often go hand-in-hand, but not always.
The first condition – risk of financial failure – addresses the business’ chances for continued profitability and viability. The second condition – operating within a high-risk industry – addresses health and safety concerns surrounding the business. Both of these circumstances can affect a business’ ability to obtain insurance, financing, and merchant accounts.
What Is Risk of Financial Failure?
Merchant account providers and banks deem a business high risk if it is likely to have a lot of:
- Canceled transactions for credit card payments
- Returns and refunds
- Credit card fraud
Banks also consider companies that don’t provide collateral for loans or have bad credit histories as high risk.
Compliance Requirements When Running a High-Risk Business
If the industry you are in causes your company to be deemed high-risk, you must make sure that it is compliant with federal, state, and local laws as well as all regulations related to risk.
For example, in 2016, the Food and Drug Administration (FDA) finalized a rule to regulate tobacco products that include e-cigarettes, vapes, cigars, and all other tobacco products. This regulation affects your business differently if you are a manufacturer or retailer, so it is important that you know and follow all FDA regulations that pertain to your business. That means if you are applying for a vape merchant account, you must know the regulations and follow them.
Consequences of Running a High-Risk Business
High-risk businesses with bad credit history will need to make a high down payment and pay a high interest rate on their loan. To meet federal, state, and local compliance requirements, high-risk businesses also have to pay for compliance related resources. For example, if your business is considered high risk because of the high incidence of accidents, then you will need to invest in additional employees and protective gear as required by regulations governing the industry.
With TouchSuite, high-risk business are able to take payments safely, securely and with true confidence in their processor. We offer low payment processing rates and have built relationships with banks who are able to underwrite high-risk businesses such as vape shops, tobacco-related businesses, and more.
Examples of High-Risk Businesses and Industries
Businesses in industries that are dangerous and have high numbers of accidents that result in injuries and deaths are on the high-risk list.The construction, mining, and agriculture industries have the most injuries and fatalities in the nation, and because of this are considered high risk. Other businesses are considered risky not because they have a lot of accidents and fatalities, but because of the nature of their business. This includes:
- Anything adult-oriented
- Vapor business
- Legal services
- Financial services
- Travel and hospitality
- Health and wellness
If your business is considered high-risk, you’ll most likely be charged higher premiums to provide the coverage you need for your business. For instance, if you operate an ecommerce business, you may pay high premiums for errors and omissions (E&O) coverage. And your business could be susceptible to penalty fees and lawsuits if you are not compliant with federal, state, and local compliance regulations.