If you’re a small business owner in Los Angeles looking to accept credit and debit card payments, opening a merchant account is a crucial step. A merchant account allows you to process card transactions, which is essential in today’s cashless economy. However, setting one up isn’t as simple as opening a bank account—you’ll need to go through an underwriting process, provide documentation, and understand the fees involved.
To help you get started, here are 10 important things you should know before opening a merchant account.
1. What Is a Merchant Account?
A merchant account is a type of bank account that allows businesses to accept card payments. When a customer makes a payment using a credit or debit card, the funds first go into your merchant account before being transferred to your business bank account.
Without a merchant account, your business would be limited to cash transactions or peer-to-peer payment apps, which can be inconvenient for customers and limit your sales. Whether you own a retail store, a restaurant, or an online business, a merchant account opening allows you to process customer-friendly and secure transactions.
2. Underwriting Is Required for a Merchant Account Opening
Unlike a personal or business bank account, merchant accounts require underwriting to assess risk before approval. Payment processors evaluate your business based on several factors, including:
- Business type – Certain industries, like travel or subscription-based services, are considered high-risk.
- Financial health – Your credit history and past financial performance can affect approval.
- Chargeback risk – Businesses with high refund or chargeback rates may face stricter approval criteria.
The underwriting process helps processors determine if they can trust your business to handle transactions responsibly.
3. You Need a Business Bank Account
Before opening a merchant account, you’ll need a business bank account to receive deposits from card transactions. This is true even if you’re a sole proprietorship.
Why is this important?
- It keeps business and personal finances separate, making bookkeeping easier.
- It ensures credibility, as banks and processors prefer working with legally registered businesses.
- It simplifies tax filing, helping you track revenue and expenses more efficiently.
If you don’t have a business bank account yet, consider setting one up before applying for a merchant account.
4. Merchant Accounts Require a Business License
A valid business license is another key requirement for opening a merchant account. This proves that your business is legally registered and compliant with local regulations.
Depending on your business structure (LLC, corporation, sole proprietorship), you may need:
- General business license from the city of Los Angeles
- Seller’s permit if you sell taxable goods
- Additional licenses if you operate in a regulated industry (e.g., liquor, healthcare)
Having the right documentation ready will speed up the approval process.
5. You Need to Apply for Underwriting the Merchant Account
Once you’ve gathered your business license, bank account details, and any other required documents, you can submit an application for underwriting. Here’s what to expect:
- Fill out an application – Provide details about your business, expected transaction volume, and processing needs.
- Submit supporting documents – These may include your business license, financial statements, and tax ID.
- Wait for approval – This can take a few hours to a few days, depending on the provider.
To improve your chances of approval, be honest about your business activities and processing history.
6. Different Types of Payment Acceptance May Require Separate Merchant Accounts
Not all payment types are processed the same way. Your merchant account setup may differ based on how you accept payments:
- Card-present (CP) transactions – For in-store payments using a physical POS terminal.
- Card-not-present (CNP) transactions – For online or phone payments, requiring a separate setup.
- Mobile payments – Some providers offer specialized accounts for accepting Apple Pay, Google Wallet, and Samsung Pay.
If you run a hybrid business (e.g., a retail store with an online shop), make sure your provider can handle multiple payment types under one account.
7. Provide Supporting Documents to the Underwriter
To finalize your application, the underwriter will request supporting documents such as:
- Business license and registration
- Tax ID or EIN (Employer Identification Number)
- Financial statements or processing history
- Bank statements
Providing complete and accurate documentation helps avoid delays in approval.
8. You Can Use the Same Merchant Account for Your Storefront and Online Sales
Many business owners wonder, “Do I need separate merchant accounts for my physical and online store?” The good news is most processors allow you to use the same merchant account for both.
Using a single merchant account for in-person and online payments offers:
- Simplified financial tracking – One account for all transactions.
- Consistent processing rates – Avoid different fees for different platforms.
- Unified customer experience – Whether a customer buys in-store or online, the payment process remains seamless.
However, some processors may require an additional payment gateway for online transactions.
9. Processing Fees May Differ
Not all transactions have the same processing fees. Your rates will depend on:
- Transaction type – Card-present transactions are usually cheaper than card-not-present ones.
- Card type – Rewards and business credit cards often have higher fees.
- Merchant provider – Different providers offer different pricing models (flat rate, interchange-plus, etc.).
To save money, compare processing fees and choose a provider that offers competitive rates for your business model.
10. You Should Follow PCI Compliance Best Practices
PCI compliance (Payment Card Industry Data Security Standard) is required for businesses that accept credit card payments. It ensures that customer data is handled securely, reducing the risk of fraud and data breaches.
Failure to comply can lead to fines, penalties, and even account termination. Many merchant service providers offer PCI compliance tools to help you stay secure.
Conclusion: 10 Things to Know When Getting a Merchant Account
Opening a merchant account is a key step in growing your business and accepting card payments. By understanding the requirements, the underwriting process, and potential fees, you can set up your account while avoiding common pitfalls.
If you’re a small business in Los Angeles looking for reliable merchant services, contact the experts at Dynamic Merchant Solutions today and get started on your merchant account opening today. We offer competitive rates, strong security, and easy integration with your business operations.
