You are looking into starting your own small business, and someone has described the company you are joining as a “multi-level marketing” or MLM company. This may have brought many questions to your mind. We’re here to help you understand what an MLM business is, why it raises concerns among payment processing companies and how to find the best payment processing for high-risk businesses like yours.
MLM defined.
Simply put, when you own an MLM business, you sell your products or services person-to-person. For instance, you might demonstrate cookware or makeup to friends and family at organized parties or sell health food supplements online. As an independent distributor in an MLM company, you make money by selling products yourself and, more lucratively, by recruiting new distributors and earning commissions on their sales proceeds.
What are so-called high-risk businesses?
People go into business to make a profit, and that goes for lenders as well. When determining if someone is a good candidate for a merchant account, financial institutions want to be as certain as possible that the retailers with whom they partner will not default on their payments. Like it or not, MLMs pose a greater-than-average chance of experiencing difficulties and, as a result, are automatically placed in the “high-risk business” category.
There are several types of high-risk businesses in addition to MLMs. They include but are not limited to sellers in the following spaces.
- Adult entertainment products and content.
- CBD and other nutraceuticals.
- Gaming sites.
- Travel-related sites.
- Cryptocurrency.
If your business is considered by banks to be an MLM, you are probably wondering what it means if you’re high-risk. Before we say anything else, it’s important to know that being placed in this category isn’t the end of the world. In other words, you can still excel and be a respected entrepreneur.
For the most part, you have been deemed high-risk because MLMs are notorious for being unstable, with many distributors quickly dropping out without ever making a profit. Additionally, MLMs have higher-than-average amounts of fraud and chargebacks, both of which are huge red flags for the financial industry.
What can you expect as the owner of a high-risk MLM business seeking a merchant account?
- Added measures during the application process. You may be asked to submit extra paperwork and documentation of your business and credit history since underwriters want to determine if you pose an acceptable risk.
- Higher per-transaction fees. Each time a customer makes a credit card purchase, you are charged a set transaction cost. Yours could be higher because of your risk status.
- Higher monthly fees.
- Processing volume caps.
- Rolling reserves. The lender may ask you to put aside a certain sum of money in a separate account that would only be taken by them if you defaulted on your payment.
It is important to know that not all high-risk processors are created equal. Do your research before signing any agreements, and don’t be shy about asking for reductions in those fees that are negotiable.
What to look for in a high-risk MLM payment processing company.
The lender you choose to partner with will be at your side for the next few years in most cases. Therefore, you should make it a priority to choose one that will meet your needs for the long term. Keep your eye out for the following attributes.
- Should have experience working with companies in the MLM sector. You want a lender that understands the challenges and changing regulatory environment of your industry.
- Pricing should be fair and transparent. The company should be happy to explain all fees, and you should not have to pay unrealistically high costs. This is where researching several competing lenders can be very helpful.
- Customer service should be readily accessible and effective. If a problem arises, there should be several ways to contact your processing company 24/7. That includes by phone, email, chat, SMS, and user forums/knowledge bases.
Tips to help you get approved quickly for a high-risk account.
The following suggestions can smooth the process of getting your MLM company approved.
- Be honest, transparent, and specific about the products you sell.
- Be able to produce a clear and thorough business model that demonstrates the legitimacy of what you sell and serves to reassure underwriters that you are unlikely to experience high chargeback rates.
- Submit bank statements, credit card scores, and histories that show your stability and reliability. If your past financial dealings are less than stellar, it will help to have someone else in your business with a good credit history to act as the applicant.
MLMs give you a turn-key way to market products and services both online and in-person to your own social contacts. If your wares are reputable and you work hard, there is the potential for financial rewards both from your own sales and from those made by your team. At the very least, you can buy products for yourself at a discounted rate. And with a reputable high-risk merchant account provider on your team, you will have everything it takes to build a thriving MLM company.
