man sitting at a desk

What Is Underwriting and How to Prepare for It

High risk merchant processing, which includes cannabis businesses, requires financial institutions to perform thorough due diligence referred to as enhanced due diligence. The process is similar in many ways to applying for an MRB bank account, in that there are similar questions and required documents. But these processes don’t have to be an obstacle. Here’s how you can prepare for underwriting.

What is underwriting?

The underwriting process verifies that your risk profile fits within our comfort zone. The purpose is to have proof that we know the answers to three main things:

  • What are you doing?
  • How are you doing it?
  • Who is doing it?

Because we are used to underwriting businesses in the cannabis space, we are aware of the inherent risks involved. However, we need to make sure that businesses are transparent and complying with their local rules and regulations.

To avoid fraud or other criminal activity, it’s our job to vet you and your business, which means looking at your documentation and making sure that it all appears to be legitimate. If a regulator asks, we need to show why we trust that your business is operating the way you say it is.

What documents you’ll need

Applying for a marijuana-related business (MRB) bank account is similar to the underwriting procedure. In fact, a lot of the same documentation is required for both. So, it’s probably best that you get these documents together and make sure that you have them readily available when you start your MRB bank account or underwriting applications.

Because every state, county, and even city is different when it comes to cannabis, the documents required may vary a lot. Your financial institution may also ask for a range of different documentation. As a result, you may find that you need to submit more proof when you do your application, or perhaps fewer documents depending on your location or relationship with the bank or credit union. Sample documents may be:

Business Entity Documents

    • Tax ID numbers
    • Sales tax documentation
    • Business licensing information
    • Organization documents such as Articles of Incorporation, Operating Agreement, Statement of Good Standing, etc.

Ownership Information

    • Beneficial owner information
    • Organizational chart or structure
    • Photo ID, social security numbers, and tax records of beneficiaries or officers

Business Operation Documentation

    • Policies and procedures
    • Compliance program documentation
    • Industry-specific licensing
    • Specific product and agent agreements
    • Expected monthly account activity
    • Vendor supplier information

How to make the underwriting process faster and easier

Too often, the underwriting process is portrayed as an obstacle, as something that needs to be pushed through or overcome. Underwriting isn’t an obstacle, it’s a flexible process of getting our team the documentation they need to determine how risky or reliable your business will be. Having an accurate understanding of your risk helps to keep your business, bank account, and merchant services safe.

It’s worth noting that each risk tier will have different follow up requirements. For example, a low-risk MRB might need to resubmit documentation annually to verify continual, legitimate operation. A higher-risk MRB may need to submit twice a year or even quarterly depending on the risk profile.

The more information you’re able to provide upfront, the easier it is for the underwriting team to determine your risk profile.

Rather than trying to hide things or circumvent the underwriting requirements, you’ll have the fastest and easiest time being honest. Not sure what kind of document you need for something? Ask! Don’t have a required document? Simply explain why. For example, if your business is new, you might not have the tax records requested. In that situation, you may be able to substitute a business plan instead.

The main thing to keep in mind is that the underwriting team is interested in helping you get through the process and setup using convenient electronic payments. Hypur has real people working in the underwriting department, and they are friendly, flexible, and excited to help make this an easy process. So, if you’re stuck, confused, or even just overwhelmed, don’t be afraid to reach out for help.

Get our

Strategic Guide to 

Cannabis Payments