How To Get Processing Hardware For Your Small Business: 4 Smart Alternatives To Leasing A Credit Card Machine

Getting a credit card machine for your small business is no easy feat. There are numerous options with different features and prices. Even if you’ve already found a good merchant service provider, you’ll still have to pick the best device that can meet your day-to-day processing needs. Unlike most physical products you need to run your business, buying a credit card terminal outright is just one of several options available to you (although we still think it’s the best choice in most cases).

In this article, we’ll explain what types of credit card machines are available and show you how to pick the best one for your business. We’ll also discuss how much these devices typically cost, and explain why leasing a credit card machine or accepting a “free” terminal with your merchant account is usually a bad idea. Finally, we’ll explain all the options you have for getting a credit card machine for your business.

What Types Of Credit Card Machines Are There?

If your business accepts any in-person payments from your customers, you’ll need a credit card machine of some type to read their cards and send their payment information to your credit card processor.

While eCommerce-only businesses do not need a credit card machine, mail order and telephone order (MOTO) businesses often use a virtual terminal to accept payments remotely, usually manually entering the customer’s card information into the terminal to complete a sale. Virtual terminals can also be connected to a compatible card reader to accept the occasional in-person transaction.

To process a transaction where the customer’s card is physically present, a credit card terminal can use one of three different technologies to read the information contained on the card:

Most credit cards in circulation today support all three of these payment methods. However, in the near future, you can expect to see your customers using cards that support EMV and contactless payment methods, but not magstripe.

While any card reader or terminal performs the basic function of reading your customers’ credit and debit cards and sending that information to your processor, there is a wide range of equipment (and software) options available. The type of equipment that’s best for your needs depends on your requirements, your budget, and whether you have a legitimate need for some of the fancier optional features on the higher-end machines. Consider the following options:

How Much Do Credit Card Machines Cost?

The cost to obtain a credit card processing machine varies. Even the same model can have very different prices, depending on where you buy it. Unprogrammed terminals purchased from major online retailers are usually the cheapest, but you might have to pay for reprogramming when you take it to your new merchant account provider. Optional equipment insurance also adds to your overall cost.

Mobile processing systems are typically the least expensive option for processing hardware, making them a popular choice for small businesses. With an mPOS, you’ll need an app, a mobile card reader, and your own smartphone or tablet to complete your system. Magstripe-only readers that plug into a headphone jack are usually free, but in today’s processing world, you’ll want an EMV-capable reader at a minimum. Getting a model with Bluetooth connectivity is also a great idea now that most modern smartphones no longer have a headphone jack. Square currently charges $59 for its Square Reader for contactless and chip, which accepts EMV and NFC-based payments and connects via Bluetooth. Prices for similar equipment from traditional merchant services providers are usually a little higher.

Traditional wired countertop terminals typically range in price from about $200 to $500. Note that the least expensive options available online do not come with a software load, so you’ll have to have your processor reprogram the machine to work with their network. There may be an additional reprogramming charge for this service, with pricing ranging from $0 to $100 per machine.

Wireless terminals are significantly more expensive, with prices starting around $350 for a single terminal. These machines also require a separate cellular data plan, which usually runs about $20 per month. The addition of “smart” features can add to the price, but you’ll have a far more powerful machine for running your business.

POS systems are even more expensive than terminals because they include additional features. A fully-featured, standalone system like the Clover Station Duo can cost as much as $1,800, depending on the configuration. Tablet-based POS systems are usually less expensive, but you’ll also need to factor in the cost of a tablet to go with it. Choosing a tablet-based POS or integrated setup with POS software means you’ll usually pay monthly software fees in addition to the charges you’re paying to maintain your merchant account. These fees can range from $60 to $299 per month, depending on the options you select.

The prices listed above only reflect the costs of obtaining a basic credit card processing device. Depending on your needs and your provider, there may be other costs as well. Debit card PIN pads, cash drawers, and even paper for your receipt printer add to your total cost of ownership. If you need multiple terminals for your business, the initial cost to purchase all of them can be significant. Unfortunately, providers know this and will often use it as leverage to convince you that leasing your equipment will save you money. This is simply not true, as we’ll explain below.

Why Leasing Is The Worst Option For Financing Credit Card Machines

Of all possible options for obtaining your processing hardware, leasing is invariably the worst one. Leasing requires no up-front costs, and this makes it very tempting if you’re trying to minimize expenses. However, the total cost of a lease over the life of the lease term far exceeds the cost of buying your equipment outright.

Most providers who offer leased equipment sign you up for a long-term contract (typically for four years) that is completely and utterly noncancelable. We cannot emphasize this last point enough: most providers (who often use independent leasing companies to provide the equipment) will not let you out of your lease early under any circumstances. Regardless of your reasons for deciding to break the lease, you will be held liable for all remaining payments due under the lease if you try to break it. Even returning the leased equipment will not get you out of your lease.

If you’re even remotely tempted to lease your equipment, multiply your monthly lease payment by the number of months in your contract. That’s how much your lease will actually cost. We can virtually guarantee that the amount will be several times more than the cost of buying the same equipment outright.

Sales agents pushing equipment leases will also try to convince you that leasing makes sense because you can write off the cost of the lease on your business taxes. They usually don’t mention that equipment that you purchase outright is also tax-deductible and will cost you far less overall.

Equipment leases are designed to generate easy, guaranteed profits for your provider (or their leasing company). Leases are not intended to be a good deal for the merchant. With most leasing contracts, you still won’t own your equipment even after you’ve made the final payment. By this point, you’ve overpaid for your machine by hundreds — if not thousands — of dollars. If you want to keep using it, you’ll either have to buy it outright (often at an inflated price) or continue making monthly lease payments indefinitely. Some leasing companies will even put you on another long-term leasing contract. Don’t do it!

We cannot emphasize enough just how bad of an idea equipment leasing is for your business. Equipment leasing is one of the most egregiously unethical practices in an industry that already has a bad reputation when it comes to honesty and fair dealing. Unfortunately, it’s just too easy for a leasing company to buy a large number of terminals at wholesale cost, reprogram them, and then lease them out to unsuspecting merchants.

To make matters even worse, most leasing companies have a reputation for providing little, if any, customer service once you’ve signed your lease. The only good news we have is that leasing has become such a despised practice that most providers will now offer you the option of purchasing your equipment rather than leasing it. Most of the better providers don’t offer a lease option at all. If your sales representative tries to talk you into leasing your equipment, it’s a good sign that you need to hang up the phone immediately and find a more reputable provider. For an overview of some of the leasing companies you’ll want to avoid, check out The Worst Credit Card Terminal Leasing Companies.

Is The “Free” Credit Card Machine Too Good To Be True?

In response to hundreds of complaints from merchants (and more than a few class-action lawsuits) regarding equipment leasing in the credit card processing industry, many providers have moved away from leasing altogether. However, one new approach that you should be wary of is the offer of a “free terminal.” Nothing is ever truly free in the processing industry. You should expect to pay higher processing rates, higher monthly account fees, or even both in exchange for that “free” terminal.

A common practice today — even among some very reputable providers — is to offer new merchants the option of either buying their equipment outright or including a “free” terminal with their account. If you buy your own equipment, you’ll be on a month-to-month contract with no long-term commitment and no early termination fee (ETF). However, if you choose to take advantage of the “free” terminal offer, you’ll have to sign up for a long-term contract (typically for three years) and accept an ETF as part of your agreement. While this is a more equitable arrangement than leasing, we still believe that, in most cases, you’ll be better off in the long run if you buy your own equipment.

In deciding between accepting a “free” terminal or buying one on your own, be aware that the “free” terminal is not yours to keep. The company will allow you to use it for as long as you keep your merchant account open with them, and you won’t be assessed any additional fees to do so. However, if you close your account for any reason, you’ll need to return it immediately to avoid being charged the full value of the equipment (often at a highly inflated price).

Also, be aware that you’ll only receive one terminal with your merchant account. If you need multiple machines, you’ll have to open additional accounts for each extra device and pay the full schedule of monthly and annual fees for each account.

With all these caveats, accepting a “free” terminal is often not a good idea. Small business owners who only need a single terminal might save money with this approach, but the cost usually comes in not having the flexibility to close your account and switch to a different provider if things don’t work out. While we don’t recommend against accepting “free” terminal offers categorically, we do encourage you to approach this kind of offer with a healthy degree of suspicion and to consider whether it will really save you money in the long run. Remember, accepting the hardware will usually lock you into a multi-year contract with an early termination fee and penalties if the equipment isn’t sent back immediately.

The 4 Best Ways To Get A Credit Card Machine For Your Small Business

Options for obtaining a credit card machine for your business generally come down to either buying one outright or paying for one on a monthly basis. Let’s consider the pros and cons of each possible option:

Which Option Is Best For Getting A Credit Card Machine?

Obtaining processing equipment and software for your business doesn’t have to be difficult or overly expensive. Unless you’re operating in Canada, buying your terminal outright is your best option in most cases. If you’re switching processors and already have a terminal, check to confirm that it’s compatible before considering new equipment. Even if you have to pay a reprogramming fee, it will cost a lot less than buying new equipment.

Whatever you do, don’t get talked into leasing your equipment! Unscrupulous sales agents have a number of misleading arguments in favor of leasing, but none of them hold up to the slightest scrutiny:

• Yes, you can get into a lease for no money down, but that’s hardly worth it when your total cost over the life of your lease is much more than what the equipment is worth.
• You’ll also hear that your lease payments are tax-deductible. You can just as easily write off the cost of buying your equipment, and you won’t be getting ripped off in the process.
• Sales agents also tout the benefits of equipment insurance and upgrades that come with a lease. However, the overwhelming feedback from merchants that we’ve seen indicates that you’ll receive little or no support from the leasing company after you’ve committed to a lease.
• If you want to upgrade to newer equipment, you’ll have to return your old terminal and sign a new lease for the replacement model. This will inevitably cost you more per month and extend your obligation under the lease even further.

In evaluating a potential merchant services provider, we also encourage you to look at complaints filed against them on consumer protection sites such as the BBB and Ripoff Report. While not all complaints are valid, you’ll usually find a pattern of charges against those providers who actively push equipment leases on their merchants. Misleading sales practices and failure to disclose the terms of the lease are common complaints from merchants who were tricked into agreeing to a lease. The noncancelable nature of these leases is also quite extreme. We’ve seen complaints where the business owner had died, and the leasing company still wouldn’t let the heirs out of the lease. Don’t let this happen to you – follow our advice and buy the equipment you need. You’ll be glad you did!

FAQs: Obtaining A Credit Card Machine