While there is always an element of risk when it comes to launching a new business, some businesses are more high risk than others. If you’re in the process of starting a business for the first time and you have encountered the label ‘high-risk business,’ then you might not be quite sure what that means, or the consequences. From getting funding to making sure that you can set up online card payments for your products or services, being a high-risk business might be more challenging than you think. If you’re new to high-risk business management, here is a quick guide to get you up to date with all you need to know.
High-Risk Businesses: Red and Grey
Although there are a variety of factors that will determine whether your business model is going to be labeled as high-risk, these generally boil down to two clear categories. These are the Red Zone and the Grey Zone. There are stark differences between the two:
- Red Zone: This is for the businesses that operate in a sector that falls under the High-Risk Industries List. Even businesses that do not trade in those high-risk industries may also get a Red Zone listing if you lack the security regulation compliance of your sector, or if there are expectations of high chargeback ratios/staff turnover.
- Grey Zone: This tends to be more about the business owner. If you have ever lost access to merchant services because of too many chargebacks then your business will automatically be classed as Grey Zone High Risk. Your credit history will also play a part, as will your volume of refunds/returns, or whether you operate globally and have to tackle multiple currencies.
Red Zone: High-Risk Industries
Many sectors are included on the High-Risk Industries List. For businesses that are categorized as Red Zone, it becomes much harder to organize a payments processor that will allow you to take online payments. However, it’s not impossible. You can apply to a High Risk Merchant Account processor even if your business is one of the following examples on the High-Risk Industries List:
- Online gambling/sport booking
- Subscription-based services
- Bitcoin mining
- Forex trading
- Cannabis (including cannabis-related products)
- Online dating sites
- E-Cigarettes or tobacco
- Telemarketing
The concept of high risk for the majority of these businesses is not just about your chances of success. Rather, it is about the likelihood of higher numbers of chargebacks, refunds, and the higher likelihood of fraud in those industries.
The Challenge of a High-Risk Business
The majority of businesses that have been classed as high risk will certainly face difficulties when it comes to finding a merchant service that will let you accept card payments online. In today’s digital consumer market, that can be a critical factor that determines your success or failure. There are options available if your business has been classified as either red or grey zone high risk. Look at high-risk merchant accounts and you could be trading online much more easily.
Running a business is rarely easy and it’s made even more difficult if you have limitations caused by your financial history or your industry. Make sure that you understand the potential roadblocks and identify the best ways to overcome them. While it’s never been easier to start your own business, make sure that you have a very clear understanding of all that it entails. A high-risk business shouldn’t put you off, but it will require a little extra planning.
