[meanguy]

I can echo the same treatment with two different merchant account providers across three companies. Didn't matter if it was a $10k month or a $1MM month or if the company was new or old--it was a constant battle. In one case it was only my personal credit rating (which happened to be spotless) that saved my business.

Yes, think about that. A merchant account -- where they hold your company's money -- relies on your personal credit score.

Anecdata: I had two chargebacks in five years of web software sales. Both claims were buyers ripping me off. I provided signed FedEx receipts for boxed software shipments and IP addresses/dates/times when the customer registered the software and downloaded updates. I ate the full cost (plus investigation and chargeback fees) both times. (This is "cost of doing business" and not an opportunity for a blog post, IMHO.)

From the post: "And thank god I made that [five figure] withdrawal when I did, because yesterday came the second phone call, informing me that a reserve would indeed be placed on my account."

I believe this action is what actually triggered the issue. If he paid the costs of running his business out of his PayPal account and took consistent monthly paychecks, it would have been far less of a flag.

Sucks that you have to do it, and we software types are famously short-tempered when it comes to dealing with real-world bureaucratic nonsense, but sometimes a bit of careful planning and playing the game wins the race.

[ios84dev]

Why would a merchant account provider have your personal social security number/be doing credit checks? Assuming its an incorporated C corp?

[dangrossman]

No merchant account provider will open a new account without the personal social security numbers of the principals. Otherwise you could defraud one bank then the next your whole life by simply forming a new LLC/corp each time for $100 a pop.

When a merchant is terminated for fraud, breach of contract or excessive chargebacks, they can be placed on the TMF (Terminated Merchant File) and MATCH (Member Alert to High-Risk Merchants) lists which all Visa/MC member banks have access to. The social security numbers of all the principals are added to that list, so that if they apply with a new business somewhere else, the bank knows they've previously been a principal of a business some other bank terminated, and the reason.

[tptacek]

Because merchant banks require them. Anyone can create any number of C corporations at any time. Merchant accounts are one of several business services that young companies can't set typically set up without somehow binding the contract to the business owners themselves.

[meanguy]

Requested it as part of the application. Perhaps I could have avoided the disclosure, but since a merchant account is effectively offering you credit (think about it) leveraging my personal rating yet incurring no liability was a pragmatic win.

The issue is that fraud prevention--like terrorism prevention--means the side that's doing the groping isn't going to tell you exactly what they're doing and why. This leads to a lot of confusion.

[rscale]

If you're a relatively small or young company, the merchant account providers often demand that a principal signs a piercing agreement and personally guarantees the account.

For the first few years I was in business my corporate credit lines were effectively personal credit lines that happened to have my company name on them.