Businesses face all kinds of decisions when it comes to credit card processing, including how to pay for equipment. If all you need is a basic countertop credit card machine, you’re looking at paying a few hundred dollars to own it outright. But what if you need a full POS system with a cash register or produce scale, or need to outfit several branches with up-to-date machines that can accept chip cards? Suddenly, you’re looking at costs in the thousands. What’s the best way to pay for your credit card equipment needs?

Some business owners turn to leasing credit card equipment. It seems like a logical choice: you’ll make a monthly payment for credit card equipment you need instead of fronting the entire cost. But did you know that leases are often the most expensive way to finance equipment? Furthermore, airtight contracts can make it impossible to get out of a lease even if you close your business.

Let’s take a look at what you’re getting into when you lease, and the alternatives to consider.

Typical Credit Card Equipment Leases Are Expensive

A typical credit card equipment lease term is 48 months. The costs for the equipment vary depending on the machine you’re financing and the company that leases it to you. It’s important to look into the retail costs of the machine(s) you’re considering and compare that to the total cost of the lease.

At CardFellow, we’ve seen some aggressive pricing. One client that we helped was paying $45/month for a PIN pad that retails for $90! They would pay $2,160 over 4 years to own the machine, and the worst part is that outrageous pricing isn’t unusual in the leasing world.

In most cases, leasing equipment will cost you much more than purchasing it outright. But, if paying thousands more than you have to isn’t enough to scare you off, what about knowing that you’re locked into a contract, and can even be sued for trying to get out of it?

Credit Card Equipment Lease Contracts Are Ironclad

It’s important to note that equipment leases come with a contract that is separate from your merchant processing contract. In most cases — even if you close your business — you’ll still be expected to follow through with equipment payments. Try to close your bank account or otherwise stop the payments, and you’ll probably find yourself looking at a lawsuit.

In fact, one of the most common complaints we hear about is the aggressive tactics used by leasing companies when the business tries to end the contract. Remember, if you intend to fight a lawsuit, you’ll need to appear in the state where you’re being sued, and usually where the company is located. Some small business owners decide it’s not worth the travel expenses, and instead settle their cases.

If getting dragged into a long court battle or paying exorbitant fees to settle your contract doesn’t sound appealing, you might want to steer clear of leasing.

Alternatives to Credit Card Equipment Leasing

By now, the thought of leasing is probably much less appealing. Expensive terms and the very real prospect of lawsuits are the last things most small businesses want.

So what should you do instead? The good news is that there are several viable alternatives to leasing credit card equipment. The right one for you will depend on your financial situation, access to other funding and your business needs.

Purchasing Outright

Of course, if you have the money to purchase equipment outright, that’s likely to be your lowest cost option. Basic countertop terminals start around $300. The arrival of tablet-based POS systems also means that you may be able to get a full POS system for much less than previous models.

However, if you need complex systems or want to outfit multiple locations, purchasing all the machines outright may be cost prohibitive. In that case, you could consider merchant cash advances, small business loans or business credit card financing.

Merchant Cash Advances

Merchant cash advances are a form of financing in which you get a lump sum in exchange for a portion of your future credit card sales. Generally easier to obtain than loans, cash advances usually don’t require collateral or good personal credit. Additionally, the approval process is faster, resulting in quicker funding.

Cash advances also have a different repayment process. Instead of a monthly payment, you’ll automatically pay a percentage of your credit card sales each day. Some businesses don’t like this arrangement, as it makes it more difficult to budget the payback. Other businesses prefer not having a set monthly amount to pay back, and appreciate that if there are slower sales days, the daily payment is accordingly lower.

The downside is that merchant cash advances may be more expensive (sometimes significantly so) when fees are accounted for. Unlike loans, cash advances don’t have an assigned interest rate, but there are still costs. Check out A Complete Guide to Merchant Cash Advances for more information.

Business Loans

The more “traditional” funding option is a business loan. Unlike cash advances, personal credit score and business credit scores do matter. Good credit can help you get more favorable loan terms or secure the amount that you need. Business loans are almost always a lower cost option than a merchant cash advance, but will also have a more thorough application process. The extra work can be worth it for the cost savings, though.

When you apply for a loan, you should expect to be able to justify what you’ll use the money for, and show that you have a grasp on your financial situation. You may need to provide profit and loss statements (P&Ls), tax returns, or other documents that give an overview of your business financials.

Business Credit Cards

Depending on how much you’re looking to finance, business credit cards are another way you can purchase equipment. Some cards even include rewards like miles or cash back, which sweetens the deal. Just remember that interest rates for credit cards are often higher than for loans, so unless you can pay off the full amount quickly, it may be more expensive in the long run.

No matter what type of credit card equipment you need or how much it costs, there are almost certainly better options than leasing. Even if you have less-than-perfect credit, alternative financing options may be available to you at reasonable costs. The trick is to do your research, and not to be swayed by slick leasing salesmen. Avoid leasing equipment, and you’ll be a step ahead from the get-go.

Ellen Cunningham is the marketing manager for CardFellow, the leading resource for businesses seeking the right credit card processing solution. She enjoys helping people understand their options for taking cards so that they can make informed decisions. Follow her on Twitter or LinkedIn.

At Bond Street, we believe financing a business should be simple, transparent, and fair. Reach out today or check your own rate in less than a minute.

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