What is a Merchant Account?
Learn what a merchant account is, how it enables credit card processing, and why your payment processing history matters for certain types of financing.
A merchant account is a type of bank account that allows businesses to accept credit and debit card payments. It acts as an intermediary, holding funds from card transactions before they are transferred to your regular business bank account.
How Merchant Accounts Work
When a customer pays with a card:
- Authorization: The payment processor verifies the card has sufficient funds
- Capture: The transaction is captured and submitted for processing
- Settlement: Funds move from the customer's bank to your merchant account
- Deposit: Funds are transferred from your merchant account to your business bank account (typically 1-3 business days)
Merchant Accounts vs. Payment Processors
These terms are related but different:
- Merchant account: The bank account where card funds are deposited
- Payment processor: The company that handles the transaction (Stripe, Square, etc.)
- Payment gateway: The software that connects your checkout to the processor
- Aggregator: A service that lets you process payments under their merchant account (like Square or PayPal)
Aggregators
Payment aggregators like Square, Stripe, and PayPal let small businesses accept cards without their own merchant account. You process under the aggregator's account, which is simpler but may have higher fees or less stability for large volumes.
Merchant Account Fees
Merchant accounts involve several types of fees:
- Interchange fees: Fees paid to card-issuing banks (non-negotiable)
- Assessment fees: Fees paid to card networks like Visa/Mastercard
- Processor markup: The processor's fee on top of interchange
- Monthly fees: Account maintenance, statement fees, PCI compliance fees
- Equipment fees: Card terminal rental or purchase
Merchant Accounts and Financing
Your merchant account history is relevant for certain types of financing:
- MCA eligibility: Merchant cash advances are based on your card processing volume
- Revenue verification: Processors show actual sales volume, which lenders use to verify revenue
- Processing statements: Lenders may request 3-6 months of merchant statements
- Direct repayment: Some financing products (MCAs) collect payments directly through your processor
What Lenders Look For
When reviewing merchant statements, lenders evaluate:
- Monthly and daily processing volume
- Consistency of sales (steady vs. volatile)
- Chargebacks and refunds (high rates are red flags)
- Trends (growing, stable, or declining)
- Batch timing (how often you settle transactions)
Keep your chargeback rate low and maintain consistent processing volume. These factors affect both your processing fees and your eligibility for merchant-based financing.
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Read more →Important Disclosure
Not Financial Advice: The information provided in this article is for general informational purposes only and does not constitute financial, legal, or professional advice. You should consult with qualified professionals before making any financial decisions.
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Rate Information: Rates, terms, and fees mentioned in this article are estimates based on publicly available information and may not reflect current market conditions or specific lender offers. Actual rates depend on creditworthiness, business financials, and lender policies.
Information May Change: Financial markets, lending regulations, and economic conditions are subject to rapid change. While we strive to keep our content accurate and up-to-date, information in this article may become outdated. Always verify current rates, terms, program availability, and regulatory requirements with lenders and official sources before making financial decisions.