High-risk businesses are typically 1) those that are in high-risk industries that involve many hazards on human health and safety, and 2) those that involve complicated transactions that can hinder the ability of a business to continuously earn money and pay for a loan. Basically, they are businesses that are perceived to experience a higher risk of financial loss.
These businesses can earn a good profit once they become established but are more difficult to ask for loans for due to the nature of their trade. Banks and lenders always assess these credit risks that come into play when submitting loan applications. Too much risk can cause them to either reject the application or give higher charges to ensure that they also won’t be at risk if the business sustains a significant loss.
But these high-risk businesses do have pros that redeem them from the difficulty in filing for loans. These businesses typically earn large profits compared to other low-risk businesses. They also usually have a very specific market that easily establishes loyalty with their brands.
Adult Entertainment Businesses
The adult entertainment industry offers a wide variety of products like digital files, services, and other items that cater to sensuality. But businesses in this industry are considered high-risk due to many reasons. One is that many of these services are subscription-based and might see a lot of chargebacks and cancellations. Another is that these businesses usually have little to no credit history for lenders to review and base their standards on. But probably the biggest factor is that banks try to avoid businesses that are already controversial in the first place.
Gambling, Gaming, and Casinos
Businesses that involve gambling are also considered high-risk due to the prevalent money laundering and fraud risks involved in this industry. The fact that most gaming businesses are based offshore increases the likelihood of these risks. They also involve multiple currencies due to how many people from different countries can participate. This is not appealing to lenders that want to invest in something relatively safe and stable.
Weapons and Firearms
As a controversial line of business, selling weapons and firearms is considered high-risk, steering off many lending companies to protect their reputations. These businesses are usually walking a thin line between legality and law violation, causing them to be closely monitored by the government at all times. This made many banks and lenders cut ties completely with this industry. They also pose serious safety risks that may result in several expensive liabilities.
Financial institutions are high-risk businesses that possess many dangers and uncertainties. Pawnshops that deal with large sums of money and customer properties are vulnerable to frauds and chargebacks. On the other hand, businesses offering bail bonds that deal with complex transactions used for legal purposes are also vulnerable to chargebacks and loss. These businesses might find it more difficult to file for loans and are typically charged with higher fees to cover the high chances of financial loss.
Any business in the lucrative industry of real estate is also a high-risk business venture that lenders stay away from. It is already a risky business for the owners as it deals with large amounts of cash and high-value properties that can soar or plummet anytime when the economy suddenly shifts. The expertise of the agent in the prediction of real estate and economy trends that comes with years of being in the industry also matters, which means that newer real estate businesses will find it harder to apply for loans.
It is like the business is constantly gambling with cash and the lenders are gambling on them in return to make a profit. This already sounds like a bad deal that can spur substantial losses.
Travel companies are also considered high-risk businesses as their services rely on online reservations that can be easily canceled. These cancellations are already (normal and expected) problems to the business itself. It costs them more to cancel reservations made to partner companies and can become a hassle to reverse customer payments. This results in chargebacks that put off lenders from submitted loan applications.
As much as these businesses may be turned away by banks and lenders, they can still be considered profitable investments as they can yield large financial returns if managed properly. For the most part, high-risk businesses will find better deals as high-risk merchant accounts in lending companies that will provide them with the necessary loans and security. But larger fees will be needed due to the predicted risks and losses.