Applying for a merchant account at a bank is much same as applying for a loan. The only difference is sometimes a loan is easier to get. There is prerequisite paperwork to complete and pledging of first born, followed by an approval process that can take up to several weeks. And you are not guaranteed that bank will approve your merchant account, even if you have been a favored customer for many years. Banks have strict regulations regarding granting of merchant accounts and if issuing you a merchant account in anyway puts bank at risk of losing money, you will be turned down. Banks always make decisions based on economics, not relationships (no matter what your banker tells you).

Requirements for qualifying for a merchant account varies among banks, but in general bank will look at following criteria:

How long have you been in business? Business longevity suggests a history of stability, efficient management, and good financial health.

What is your product or service? Does your product lend itself to a high rate of returns and chargebacks? A chargeback is a disputed credit card charge that is refunded to buyer and charged against your account. You are accessed a chargeback fee that can be as much as $20 per event. If your business lends itself to high chargebacks, you will not get merchant account.

How's your credit report? Banks always look at how much you owe and how you pay your bills, so it's important to have good financial and trade references. If you have a history of late payments or defaults to vendors, it will count against you.

What is your anticipated volume of sales and average transaction amount? The more money you make, more money bank makes. If you anticipate just a few credit card charges per week it may not be enough to justify merchant account in bank's eyes.

Is your business categorized as a "high risk merchant?" High risk merchants are those with highest instances of credit card fraud and chargebacks. High risk merchants include many types of internet-based businesses, telemarketers, travel and cruise businesses, and membership clubs. Being a high risk merchant dramatically decreases your chances of getting a merchant account with a bank.

Being a high risk merchant doesn't mean that you can't get a merchant account from somewhere else. Thanks to growth of ecommerce in recent years there are a number of alternative companies that will provide you with a merchant account, sometimes with more perks than a traditional account, but almost always with higher fees.

Also, not all banks support internet merchant accounts. If yours does not, shop around for one that does. We'll take a look at accepting credit cards online in next week's column.

Here's to your success.

Tim Knox tim@dropshipwholesale.net For information on starting your own online or eBay business, visit http://www.dropshipwholesale.net

Small Business Q&A is written by veteran entrepreneur and syndicated columnist, Tim Knox. Tim serves as the president and CEO of three successful technology companies and is the founder of DropshipWholesale.net, an online organization dedicated to the success of online and eBay entrepreneurs.

As mentioned last week, IRS uses a number of factors to determine if an eBay hobby that generates sales revenue is actually a business.

These factors include: - Do you carry on hobby in a business-like manner? - Do you spend considerable time working on hobby? - Do you depend on income from your hobby for your livelihood?

If answer to any or all of these question is yes, you're running a business, not carrying on a hobby, and you are responsible for paying taxes on your income.

What's eBay's take on all this? Naturally eBay is vehemently opposed to anything that might rock eBay boat. eBay does not does not issue 1099 tax forms to sellers, nor does it report seller's sales figures to IRS.

Ebay considers itself merely to be a facilitator, meaning that they provide a marketplace in which buyers and sellers come together to do business.

Furthermore, under it's current system it would be impossible for eBay to issue accurate 1099s to sellers. eBay does not track if a seller actually gets paid by buyer, so eBay has no idea how much money - if any - actually changes hands at end of each transaction.

On bright side, if you do sell on eBay as a business you can deduct a number of business expenses, including cost of inventory, listing fees, shipping, envelopes, packing materials, etc.

You might also be able to deduct things like purchase of a computer for business use, office space (even if it's a home office), office supplies, and more.

Talk to your accountant if there's any doubt as to whether you should or should not be paying taxes on your eBay earnings.

Here's to your success!

Tim Knox tim@dropshipwholesale.net For information on starting your own online or eBay business, visit http://www.dropshipwholesale.net

Small Business Q&A is written by veteran entrepreneur and syndicated columnist, Tim Knox. Tim serves as the president and CEO of three successful technology companies and is the founder of DropshipWholesale.net, an online organization dedicated to the success of online and eBay entrepreneurs.