Few businesses have quite the same relationship with their equipment as laundromats. Essentially, your equipment is almost the entire draw of your business. Customers will be regularly paying you to directly utilize your equipment, so it goes without saying that you want to spend a lot of time thinking about your equipment purchases.
If you’re thinking about starting your own laundromat and want to get a sense of how much the equipment will cost, where to buy it, and how to finance it, you’ve come to the right place. Read on for more information.
The Equipment You Need To Start A Laundromat (& How Much It Costs)
If you’ve been to a laundromat, you probably have a general idea of what types of equipment you’ll need to get your laundromat up and running. Nevertheless, let’s lay them all out to make sure we’re on the same page. You’ll need, at a minimum:
Commercial washers ($700 – $25,000 each)
Commercial dryers ($1,000 – $20,000 each)
A payment system
Coin-based ($100 – $200 per machine, $700-$1,200 per bill-to-coin changer)
Card-reader system ($40,000 – $80,000)
Water heating system ($15,000 – $40,000)
You’ll probably want:
Tables for folding ($60 – $600/each)
Seating ($30 and up/each)
Laundry carts ($50 – $80/each)
Vending machines for snacks/detergent ($1,000 – $5,000/each)
This is the reason your customers will come! Commercial washers come in a number of different sizes, with capacity ranging from 1.7 cubic feet to over 4.5 cubic feet. Many laundromats provide different sizes for different loads, charging more for use of the larger machines. In general, top-loaders are cheaper than side-loaders but are less energy and water-efficient. Even so, there’s a pretty enormous range of prices for washing units. For any given model, you want to take into account the long-term costs of the machine in terms of both utilities and maintenance. If you’re aren’t hunting for the absolute cheapest or most expensive models, you can probably expect to pay somewhere between $1,000 and $3,000 per unit.
Most customers who use laundromats will also want to dry their clothes on site. Dryers can be heated by electricity or gas, but the majority of new laundromats will probably opt for electric (typically 240 volts) unless they already have a convenient infrastructure for gas. If you’re short on floor space, you may want to consider stackable dryers, which allow you to double the number of units you can fit within your shop. Expect to pay a bit more for the privilege, however.
Dryers generally have a larger capacity than washers, ranging from 5.5 to over 9 cubic feet, as more space is needed to effectively dry the same amount of clothes. Like washers, you can probably find decent units for between $1,000 to $3,000 each.
A Payment System
The once-ubiquitous coin-operated laundry is a rarer sight than it used to be, but it’s still a viable option for laundromats looking to minimize startup costs. The coin boxes, feeder slides, and wiring add a small amount of expense to each machine. You’ll also need to spring for a bill-to-coin changer or two to ensure that your customers have quarters to feed your machines.
The downsides of a coin-based system come into play down the road. While you won’t exactly be a bank, you’ll have a lot more cash onsite, which means you’ll have more security risks than you would with a card-based system. Those risks can add expense–collecting the coins, transporting them, etc.
A card-based system, on the other hand, offers a lot of long-term conveniences. You won’t have to worry about collecting or keeping track of coins, and your customers won’t have to worry about having cash on hand when they walk in. Even better, these systems make it easier to track your sales. Additionally, they can function a bit like loyalty cards, encouraging customers to come back and spend down the value on their cards. Some systems also allow you to offer perks like dryer credits.
The downside, of course, is that these systems are pricey to install, adding upwards of $40K to your startup expenses. If you can afford it, though, the general consensus seems to be that they’re worth it.
Water Heating System
If you’re offering warm and hot wash cycles, you’ll need a heating system for all that water you’ll be using. These systems come with or without a storage tank. The advantage of the former is that it keeps hot water at the ready for use, but utilizes more energy to do so. Either way, you’ll want to make sure your system is powerful enough to produce enough hot water for all your machines should they run at once. With a tank storage system, you’ll want to consider its recovery rate to make sure it can meet peak demand, whereas with a tankless system your concern should be with the amount of hot water it can produce on demand.
While not necessary per se, there are some other items that will improve your customers’ laundromat experience and help you stand out from the competition.
First, there’s the stuff that helps customers take care of their laundry. I’m talking about carts that make it easier to move wet laundry to dryers, and dry laundry to tables for folding. And speaking of tables, you’ll probably want those too. How about seating for customers who are waiting for their laundry to finish? And maybe a way to buy detergent, fabric softener, or dryer sheets if they didn’t bring their own?
Vending machines are a common sight in laundromats, and for good reason. Your busy, captive clientele are likely to get thirsty or peckish. It’s not unusual for such machines to be a significant source of revenue for laundromats. Vending machine prices vary quite a bit depending on the model and whether you buy new or used, but you’re probably looking at an outlay between $1,000 and $5,000 each.
The final consideration is entertainment. Let’s face it, doing your laundry isn’t the most exciting thing in the world. Sure, many customers have smartphones, but maybe they’d be more comfortable watching TV! How about some toys to occupy kids? And who doesn’t associate laundromats with old-fashioned coin-operated arcade games? While none of these are necessary, they can be difference-makers when people are choosing where to do their laundry.
Where To Purchase Laundromat Equipment
You can purchase laundromat equipment through a number of different sources. The option that’s best for you will likely depend on your budget, your location, and your business plan.
Laundromats are such a common business there are actually quite a few companies that exist primarily to service them. These distributors specialize in selling, servicing, and installing laundry equipment. They also usually deal in parts, which can be useful if you’re trying to keep older machines running. If you decide to use a distributor, make sure they have a good reputation and work with the brands you want to use. If you’re looking to keep costs really low, many distributors also deal in used equipment.
You can also try to buy your equipment directly from the manufacturer. While many brands still work with local distributors to sell their products, some also offer their own financing programs to help customers buy their products. Coincidentally, if you know the brand of equipment you want, you can often use a manufacturer’s website to find distributors in your area.
While they aren’t nationally known like some other industries, there are a number of laundromat franchises operating in the US. Plugging into a franchise usually raises your starting costs. You’ll have to pay a franchise fee upfront, conform to franchise standards, and may have to pay royalties every month. In exchange, you benefit from the franchise’s advertising and supply chains. Keep in mind, a franchise will most likely lock you into specific brands and layouts.
You can, of course, buy equipment from retailers, but unless you’re taking advantage of a great sale or can come to some kind of bulk buying/financing agreement, this probably won’t be the best way to purchase the majority of your laundromat equipment. It may, however, make sense to buy some of your smaller one-off purchases this way.
Laundromat Equipment Financing Options
By now, you’re probably realizing that equipment makes up a lot of the cost of starting a laundromat, with total costs for an average-sized laundromat ranging between $200K – $500K. If you don’t have that much money lying around under your mattress, you’ll need to seek other sources of financing.
If you have decent credit (620+) and would rather have monthly payments rather than a large initial expense, you can lease your laundromat equipment. Leases come in two general forms: capital leases and operating leases. Capital leases are effectively loan substitutes, meaning you’re financing equipment with the intent to own. Operating leases, on the other hand, are rental agreements that allow you to utilize equipment that is technically owned by the leasing company. This can be a useful arrangement if you want to frequently upgrade your machinery. If you’re buying from a manufacturer, see if they offer captive leasing, or are partnered with any equipment leasing companies.
Keep in mind, however, that leasing is almost always more expensive over time than buying.
If you’re looking to buy and can afford a downpayment, a slightly cheaper option than leasing is to get an equipment loan. Equipment loans are secured loans that use the equipment being purchased as collateral. This tends to result in better term lengths and rates than you’d see with a similar unsecured working capital loan.
The Small Business Administration can help new businesses that may not otherwise qualify for competitive loan rates and terms to get them. The two most popular programs, 7(a) and 504, can both be used to purchase equipment. The term lengths offered by these programs can spread the cost of your equipment out over a long period and give your business time to mature. Just be aware that applying for SBA loans is an involved, time-consuming process.
Start Your Laundromat Business Off With The Right Equipment
Remember, a laundromat is itself something of an equipment rental business, with the customer “borrowing” your machines for short intervals to clean your clothes. That means your equipment should be one of the top priorities of your business.
Ready to do some purchasing? Check out our favorite equipment financers. Confused about some of the terminology? Take a look at our breakdown of the differences between equipment loans and leases.
The post Laundromat Equipment Guide: Expected Costs, Where To Purchase, & How To Finance Laundromat Equipment appeared first on Merchant Maverick.
One of the most common expenses a business can encounter is the need to purchase or upgrade equipment, but choosing an equipment leasing company can be a challenge. Choosing one that will give you a good deal that fits the specific needs of your company can be downright daunting.
Don’t know a TRAC lease from a leaseback? A tax lease from a synthetic lease? Not sure where to start looking? The equipment leasing industry’s websites are notoriously full of opaque, specialized terms … and that’s when specific terms are offered at all.
We’ll try to demystify the process below, and hopefully put you on the right track.
Best Product Type
Big Ticket Items
TCF Equipment Financing
CIT Direct Capital
Find A Lessor Who Will Work With You
The easiest way to rule out a potential lessor (the company that finances the lease) is to see if they serve your industry. Most lessors, particularly those that work with resales, specialize in specific industries. Even the least transparent lessors tend to be upfront about the industries they’re able to finance, so it’s not a bad place to start. If possible, you’ll also want to see if they finance the specific type of item you’re looking for.
Next, you’ll want to take stock of your own profile as an applicant. How good is your credit? How long have you been in business? What’s your revenue? How much debt have you taken on?
Lessors don’t always advertise their minimum qualifications. Since your time is limited and valuable, if you have reasonable doubts about your ability to qualify with a particular lender, I would recommend prioritizing more transparent lenders. You don’t want to waste time filling out a long application only to be rejected. To save yourself some headache, take advantage of online screening/pre-qualifying tools the lessor might offer.
Choose The Right Leasing Arrangement
This is where it gets a little complicated.
Because you’re dealing with a tangible asset, when making a deal with a lessor, you’ll need to be prepared to work through anÂ enormous number of lease variations covering different possible ownership arrangements.
The simplest leases function as loan replacements. That is to say, the lessor finances your equipment, which you are considered to have ownership of either immediately or by the end of the lease. You’ll make regular payments, typically monthly, for the length of your lease, at the end of which you’ll pay a small residual fee to close it out. These are called capital leases.
Why would you want a capital lease instead of a straightforward loan? While the interest rate is usually higher than it would be with a comparable loan, a capital lease covers the full cost of the equipment you’re buying and, very often, associated transportation and installation costs as well. These leases also tend to be easier to get than traditional loans.
But what if you don’t want to own the equipment long-term?
In that case, you may want to look for an operating lease. Operating leasesÂ are more like rentals with the option to buy. The lessor will retain official ownership of the asset, but you’ll have possession of it for the length of the lease. At the end of the term, you’ll have the option to return the equipment to the lessor or purchase it for a residual — typically fair market value (FMV).
There are a huge number of variations on both operating and capital leases, as well as tax advantages and disadvantages to both which you should discuss with an accountant. But generally:
If the equipment you’re considering will not become obsolete quickly and you’d like to own it, choose some form of capital lease.
If the equipment you’re considering depreciates quickly or becomes obsolete within a couple years, you probably want an operating lease.
Once you know what type of lease you want, you can narrow down your list of eligible lessors.
What About Equipment Loans?
Nothing wrong with them! If you’re looking at capital leases, you should also consider getting anÂ equipment loan.
Equipment loans usually cover around 85 percent of the cost of the item, so be prepared to make a downpayment unless your lender specifies that they cover the full price.
One nice thing about equipment loans is that the purchase itself can serve as collateral (or security) for the loan, which means you’ll generally see lower interest rates than you would with an equivalent unsecured loan.
Check out our equipment financing resources if that sounds interesting.
$2K – $5M
As low as 2%
$5K – $500K
24 – 72 months
Starts at 5%
Up to $250K
1 – 72 months
Starts at 5.49%
Compare Rates & Fees
While the ability to get financing is great, you don’t want to pay more than you have to for the pleasure. This is much easier when you’re dealing with transparent lenders who lay all their cards on the table.
What terms and fees should you be aware of when looking into an equipment lease?
Interest Rates:Â The biggest cost you’ll run into with financing should be the interest rate. Generally, lower is better, but make sure you know how often and in what way the interest rate is applied.
Origination Fee:Â Common with loans, but unusual with leases, this is a fee that’s applied upfront. In most cases, it is deducted from the amount of money you receive when you get your capital.
Administrative Fee:Â This can be rationalized in any number of ways by your equipment financer, but it is a fee charged for servicing your account. It may be charged once, or at specific intervals.
Downpayment:Â The percentage you’re expected to pay out of pocket towards the equipment you’re buying. Common with equipment loans. With leases, there generally isn’t a downpayment, but you may be expected to pony up the first and last month’s payment up front.
Monthly Payment:Â The amount of money you’re expected to pay each billing cycle, usually monthly. In the case of leases, the higher your payment, the lower your residual will be.
Residual:Â An amount leftover at the end of your lease that you pay if you decide you want own your equipment. The lower your residual, the higher your payments will be.
The Best Equipment Leasing Companies
Not ready to build a spreadsheet comparing every equipment leasing company on the market? No worries. We can get you started.
Note that you’ll also want to consider leasing from banks or credit unions with which you’ve already built a relationship, as many times they can offer you the best rates (assuming you make the credit cut). If you’re dealing with a major brand, you may also want to consider working with a captive lessor.
Time in business: 6 months
Business revenue: $10,000 per month
Personal credit score: 550
Borrower requirements (click to expand)
One of the most efficient ways to seek equipment financing is through an aggregator service like Lendio. With one application, you’ll effectively have access to Lendio’s 75+ affiliates.Â One nice thing about this service is that it’s free on the borrower’s end, so you’ll only have to worry about fees charged by the company Lendio ultimately connects you with.
Be aware that, although Lendio can work with customers with credit as low as 550, for equipment financing you’ll usually need to have a credit rating over 650.
For those who successfully apply, Lendio’s partners will finance the full cost of your equipment.
Time in business: 6 months
Business revenue: $75,000 per year
Personal credit score: 585 or above
Borrower requirements (click to expand)
Another aggregator option for equipment financing is Currency Capital.
While online lenders have taken great pains to streamline application processes for working capital loans, equipment financing tends to be more traditional. Currency set out to change that, developing an API they compare to Amazon’s 1-click shopping experience.
Getting setup with Currency is a bit more laborious than, say, working with Lendio, but if you’re thinking ahead to future purchases, it may be worth the investment.
Time in business: 24 months
Personal credit score: 650
Borrower requirements (click to expand)
Want to skip the middle men? Check out Crest Capital.
Crest deals in just about every kind of lease you could think of, whether you want to own your equipment or just operate it for a little while. Additionally, they’re able to work with a wide variety of industries including agriculture, manufacturing, automative, and medical, as well as office equipment and software.
You will need to have been in business for at least two years, however, and have a credit rating of 650 or better.
TCF Equipment Finance
Time in business: 5 years
Personal credit score: 700
Borrower requirements (click to expand)
TCF Equipment Finance, as the name implies, is the equipment financing and resale wing of TCF Bank. As a bank, their lending practices are as conservative as their pockets are deep. That means TCF is a good solution for mature businesses with excellent credit.
TCF offers many variations on capital and operating leases and works with most industries.
CIT Direct Capital
Time in business: 2 years
Business revenue: $100,000 per month
Personal credit score: 680
Borrower requirements (click to expand)
Another good option for those with solid credit ratings is CIT Direct Capital. Their equipment financing division doesn’t have quite as broad a variety of lease types of some of the other options here, but it’s easier to meet their qualifications than those of many banks.
Both capital and operating leases are offered.
Between the hundreds of equipment leasing companies out there and the often strict qualifications needed to get financing, it can be a challenge to find a lessor who meets your needs. Hopefully you now have a better sense of what to look for when choosing an equipment leasing company.
Having trouble meeting the high lending standards for equipment financing? Don’t panic! Many other types of financing can be used to purchase equipment. For smaller items you can pay off quickly, you may want to consider a business credit card. For larger items, check out installment loans.
The post How To Choose An Equipment Leasing Company appeared first on Merchant Maverick.
Business owners today know that itâs more important than ever to be able to accept credit cards. Customers carry less cash, and rely on credit and debit cards for the majority of their purchases. If youâre an eCommerce merchant selling online, taking âplasticâ is just about your only option. Unfortunately, you canât accept credit cards unless you have a merchant account, and merchant accounts arenât free. In fact, they can be very expensive â especially for a small business â if you choose the wrong provider.
The credit card processing industry can be very bewildering, especially for a first-time business owner. There are dozens of companies providing processing services, and each of them offers different processing rates, fees, and contract terms. A provider thatâs a good deal for a very small business might be prohibitively expensive for a larger one, and vice versa. Naturally, merchants want to cut through the confusion and get a quick answer to the question âWhich one is the cheapest?â Thereâs nothing wrong with wanting to save money, especially for a new business that has to count every penny. However, if you look up âcheapâ in the Merriam-Webster Dictionary, youâll note that while cheap can mean âcharging or obtainable at a low price,â it can also mean âof inferior quality or worth.â If youâve ever been disappointed with a product purchase when you thought you were getting a good deal, you know that these two definitions often go together.
Here’s a quick look at some of our favorite low-cost credit card processors. Some are free to use. You just pay for the transaction you process. We don’t cover all of these in-depth in this post, but you can check out our complete reviews for all the details.Â
The Overall Cheapest Credit Card Processing Companies for 2018
Best Choice For
Small-ticket, Canada,Â Mobile, eCommerceÂ
All businesses, Mobile, Retail
Large-ticket, All-in-one, Recurring billing
POS and Other Features Included
Rate Matching/ Negotiable
0.30% + $0.10
0.20% + $0.10
0.00% + $0.08
Basic Monthly Fee
Before we delve into specific processors, there are two important points that you need to understand:
The company offering the lowest processing rates or fees isnât necessarily the cheapest. The total percentage of your credit card sales that youâll have to fork over to your merchant account provider isnât an easy thing to calculate in advance with any precision. Variable processing rates and hidden (or at least unanticipated) fees can easily result in you paying much more than you thought you were going to for processing. Companies offering flat-rate pricing fare much better in this regard, as their simple pricing structure makes it relatively easy to estimate your monthly processing costs.
The âcheapestâ processor isnât necessarily the best one for your business. While you naturally want to be able to accept credit cards while paying the least amount of money for the privilege, companies offering the lowest rates often cut corners in other aspects of their service to make those low rates possible. Poor customer service, for example, is a common problem among the least-expensive processors. If you want the best overall, you might also check out our top picks for small business credit card processing.
Types Of Providers
With the advent of new, low-cost providers, there are now two broad categories of companies providing credit card processing services. These include traditional (or full-service) merchant account providers, and payment services providers, who offer credit card processing, but without some of the features of a full-service merchant account. Itâs very important that you understand the difference between the two.
Payment service providers (PSPs) can process your credit card transactions, but they donât provide you with a unique merchant ID number for your business. Instead, your account is aggregated together with other merchants. This lowers the cost of things like monthly account fees and PCI compliance, but it also means that your account is much more vulnerable to being suddenly frozen or shut down for the slightest hint of fraud. Getting your account working again is complicated by the fact that most PSPs provide little in the way of one-on-one customer service. For a very small business, a PSP may very well be more affordable than a full-service merchant account, especially since you wonât have to pay so many recurring fees just to keep your account open. Be aware, however, that youâll constantly be running the risk of suddenly losing access to your account and not being able to accept credit cards at all with a PSP. If your business processes a high number of credit card transactions on a daily basis, the loss of business youâll incur if your account is frozen is quite high. Popular PSPs include PayPal, Square, and Stripe.
Traditional merchant accounts include a number of features you wonât find with most PSPs. The primary distinction is that you will be assigned a merchant identification number that is unique to your business. This number automatically identifies you to processors, issuing banks, and credit card associations. While it might not sound like much, having a unique merchant ID number helps to lower the risk of fraud and improves the stability of your account. While you still might have to endure a hold on funds for an unusually large transaction, the chances of your account being completely frozen for no apparent reason are much less than they are with a PSP. Merchant account providers also offer a host of ancillary services, including PCI security scans, customizable payment gateways for online payments, support for ACH (eCheck) payments, and many others. These bells and whistles donât come cheap, of course. Youâll pay more in monthly fees than you will for an account with a PSP. However, youâll also pay lower processing rates, especially if your merchant account provider offers interchange-plus pricing. For many medium-sized and larger businesses, a full-service merchant account will actually be less expensive than a PSP.
How We Chose
We used a number of criteria to determine which processors offered the lowest overall costs and the best service in most situations, including the following:
Pricing: Since weâre profiling the cheapest processors in the industry, it should come as no surprise that pricing would be our top criterion. It isnât that simple, however. Pricing can be very complex, and there are a lot of variables to analyze in making a cost comparison between one provider and another. Fortunately, flat-rate pricing is relatively easy to analyze, as thereâs usually little or no variability in the processing rates. Interchange-plus pricing, on the other hand, is very complex, as there are a bewildering number of possible rates charged under the âinterchangeâ portion of the processing rate formula. To get a better idea of just how complicated processing rates can be, check out our Complete Guide to Credit Card Processing Rates & Fees.
Contracts: No one wants to be stuck in a long-term contract with an expensive early termination fee if you close your account early, but thatâs what many traditional merchant account providers will offer you. All the companies profiled here â including both PSPs and full-service merchant account providers â offer month-to-month contracts. You can close your account and switch to a different provider any time you want, and with no penalty.
Hardware: Unless youâre running an eCommerce-only business, youâre going to need some equipment to process your customersâ credit cards. Most of the companies profiled here offer a variety of EMV-compliant credit card terminals, POS systems, and mobile card swipers. Equipment is offered for sale at competitive prices â sometimes itâs even free! You can also buy your own equipment and have it reprogrammed to work with your providerâs service. Note that Stripe is eCommerce-only and PayPal only offers a mobile payment solution through their ancillary service, PayPal Here.
eCommerce support: Buying online continues to overtake traditional retail shopping, and all our profiled providers offer support for eCommerce. This includes both a payment gateway to send payment data to the processor and a virtual terminal to allow you to enter transactions on your computer or mobile device. Each provider also offers options for integrating your website with online shopping carts and developer tools for customizing the interface between your site and their services.
Customer support: While every provider offers customer support and service, some do a much better job at it than others. We looked for vendors that provided 24/7 telephone support, as well as an online knowledgebase that allows merchants to troubleshoot common problems on their own. As weâve noted, some PSPs donât provide very good customer support at all. Thatâs one of the trade-offs youâll have to be aware of if you want to go with the âcheapestâ option for credit card processing.
Remember, there isnât a single processor out there that can offer the lowest costs to every merchant. What might be a very inexpensive solution for you might not be such a good deal for someone else. Also, paying the least amount of money for processing wonât be of much use to you if you have to worry about your account suddenly being frozen or shut down, or if the customer service behind your account isnât adequate to solve technical problems for you when they arise. That said, here are our six top choices for the cheapest credit card processing companies:
Everyone has heard of Square (see our review) by now. With its free Square Reader, app-based payment system, and simple pricing structure, itâs one of the most popular processing services on the market for small businesses. Squareâs pay-as-you-go system allows businesses that ordinarily couldnât afford a merchant account to accept credit cards.
Retail businesses love Square for its low-priced card readers, which replace traditional credit card terminals with a smartphone-based system thatâs both affordable and mobile. In addition to a card reader, youâll need the free Square app, a smartphone, and an Internet connection. Squareâs original card reader is free and youâll receive one when you open your account. However, it can only read magstripe cards and requires a headphone jack to function. Most users will want to shell out a few extra bucks for a newer, EMV-compliant reader. The Square reader is only $49.00, and supports both EMV and NFC-based payment methods. It also uses Bluetooth to connect to your smartphone or tablet â no headphone jack required.
Cheapest Mobile Credit Card Processing Company
â $0 monthly fee
â 2.75% for all card-present transactions
â Exceptional POS app included free
â Free credit card reader available Proprietary software suite includes:
â¢ Point of sale software
â¢ Inventory management
â¢ Mobile app
â¢ Virtual terminal
â¢ API for custom solutions
Visit the Square website
Read our Square review
Squareâs pricing structure is about as simple as it gets. There are no monthly fees whatsoever for a basic account, and none of the types of âhiddenâ fees that traditional merchant account providers like to tack on. While some advanced features require a monthly subscription, these are entirely optional, and most businesses probably wonât need them. Squareâs processing rates are also very simple:
2.75% for all card-present transactions (including magstripe, EMV, and NFC)
2.90% + $0.30 for all invoices and eCommerce transactions
3.50% + $0.15 for all virtual terminal and keyed-in transactions
Thatâs it! You donât have to worry about non-qualified transactions, batch fees, or anything else. Funds are deposited into the userâs account within 1-2 business days in most cases. Billing is month-to-month, so you donât have to worry about long-term contracts and early termination fees. You can quit anytime you want without penalty.
This all sounds great â and it is â if youâre a small business that has to watch every penny and canât afford to shell out a significant amount of money every month just to have a merchant account. For a larger business, however, Squareâs pricing actually isnât the best deal available. Flat-rate pricing is deliberately on the high side because it has to pay for all the other services that most providers bill you separately for. At a certain point (roughly $10,000 per month in processing volume), youâre actually better off going with a full-service merchant account provider that offers interchange-plus pricing. Yes, youâll have to pay those pesky account fees, but your processing rates will be so much lower that youâll save money overall.
Besides high processing rates, Square has a few other drawbacks as well. Weâve already mentioned that your account is much more likely to be frozen or terminated unexpectedly, but what makes this situation worse is that Squareâs customer service isnât so great. The company didnât even have telephone support for several years after it launched, but it does now. Unfortunately, itâs only available during business hours, and the large number of complaints about it suggests that the quality of support youâll receive if you call in with a problem is inconsistent at best.
But is it really the cheapest way to go? Well, it depends. For a very small business that doesnât have a high processing volume, Squareâs lack of account fees and predictable pricing can make it very affordable. On the other hand, a larger business with a high processing volume will end up paying much more under those flat-rate prices than it would with an interchange-plus pricing plan.
Square keeps costs low by aggregating accounts together rather than issuing each user a unique Merchant ID number. Because of this, you wonât get a true full-service merchant account. The trade-off is that thereâs a much higher chance that your account will be frozen or terminated without notice if fraud is suspected. This might be a minor inconvenience to a retail business that mostly deals in cash and only occasionally takes credit cards, but itâs catastrophic to an eCommerce business where cash isnât an option.
No monthly account fees
Low-cost EMV-compliant card readers available
No long-term contracts or early termination fees
Not a full-service merchant account; no unique Merchant ID number
Frequent account holds and terminations
Flat-rate pricing is more expensive than interchange-plus for larger businesses
For a more detailed look at Square, be sure to check out our full review.
Payline DataÂ (see our review) covers all the bases for small business transactions, from mobile and online payments to in-store sales. They offer easy-to-understand pricing plans that are very affordable, especially for low-volume sellers. However, the company’s website fully explains all of the extra features and their associated costs, so you know up front what you’ll have to pay. Payline also stands out from the crowd for their corporate philosophy of charitable giving and support for non-profits through discounted pricing and their “Commercial Co-Venture” program.
Cheapest Merchant Account Provider
â No early termination fees
â Transparent interchange-plus pass-through pricing
â Outstanding $0 monthly fee option
â Exceptional ecommerce shopping cart compatibility Proprietary software suite includes:
â¢ Excellent mobile processing app
â¢ Easy integration API for customization
â¢ Virtual terminal
â¢ Billing management
Visit the Payline website
Read our Payline review
For brand-new or mobile businesses, Payline Start is the most affordable plan. Thereâs no monthly fee, and pass-through markup rates are set atÂ 0.30% + $0.10 per transaction. In addition to the free virtual terminal, youâll also receive a free Ingenico GX5 card reader and the Payline Mobile app to go with it. If youâre looking for value, but want better equipment and lower rates, the Payline Shop plan might be right for you. This plan includes the same features as the Payline Start plan, but lowers your processing rate. The plan costs $10 per month, and markup rates are set atÂ 0.20% + $0.10 per transaction. Mobile businesses and small to medium retailers will benefit the most from this plan.
For more information, see our complete Payline Data review.
No account setup fees. No PCI compliance fees. No gateway fees. No monthly minimums, either. Thereâs a lot of things that CDGcommerce (see our review) doesnât charge you for, making them a very affordable option for small businesses and those just getting off the ground. They also offer month-to-month contracts with no early termination fee, so in the unlikely event that you arenât happy with their service, you can close your account without penalty.
So, what do you pay for? Besides processing charges, youâll only have to pay a $10.00 monthly account fee. This gets you both a full-service merchant account and a payment gateway. You can select either CDGâs own proprietary Quantum gateway or Authorize.Net. Either way, thereâs no fee for using the gateway, and no additional per-transaction processing fee. While this is a great deal, you also have the option of adding the cdg360 security package for an extra $15.00 per month. It comes with customized security alerts, PCI-DSS vulnerability scans, and $100,000 in data breach/theft protection. Itâs well worth paying a little extra for, especially for eCommerce merchants.
Good Option for Online Payment Processing
â No early termination fees
â Transparent interchange-plus pass-through pricing
â Free payment gateway option with activation within an hour
â Exceptional ecommerce shopping cart compatibility
â Over 20 years with excellent reputation Proprietary fraud prevention suite includes:
â¢ Automatic high-risk order detection
â¢ Dialverify phone order verification
â¢ Cardholder authentication (VbV/MSC)
â¢ Chargeback defender
â¢ Easy integration and API for customization
Visit the CDGcommerce website
Read our CDGcommerce review
We donât recommend leasing a credit card terminal, but CDG has a program thatâs very different from traditional leases, and is actually a good deal. For only $79 per year (for terminal insurance), CDG will provide you with a terminal and keep it updated. This works out to $6.58 per month, a fraction of what most terminal leasing companies will charge you. If you need a wireless terminal, youâll also have to pay $20.00 per month for wireless data and an additional $0.05 per transaction in processing fees.
You wonât need to negotiate with CDG to figure out your processing rates. All their rate plans are interchange-plus and are fully disclosed on their website. The company offers a choice between Simplified and Advanced pricing plans, with Simplified pricing being designed for merchants processing less than $10,000 per month, and Advanced pricing being for those processing $10,000 or more per month. Here are their current rates:
Online: interchange + 0.30% + $0.15 per transaction
Retail (swipe or POS): interchange + 0.25% + $0.10 per transaction
Mobile: interchange + 0.25% + $0.10 per transaction
Non-profit: interchange + 0.20% + $0.10 per transaction
With very low account fees and competitive interchange-plus processing rates, CDGcommerce offers a great combination of price and value. If youâve been using Square or PayPal and want to upgrade to a full-service merchant account, theyâre an excellent option.
Month-to-month billing with no long-term contracts or early termination fees
Free payment gateway with virtual terminal
Excellent customer service
Only available to US-based merchants
For more information, see our complete review here.
Dharma Merchant Services
Headquartered in downtown San Francisco, California, it should come as no surprise that Dharma Merchant ServicesÂ (see our review) is far more socially responsible than just about any other merchant account provider in the industry. For you, that enlightened corporate philosophy translates into fair and transparent pricing, reasonable contract terms, and excellent customer support.
Because they donât try to squeeze extra money out of struggling small business owners, you wonât have to pay an account setup fee or an annual fee. Thereâs no monthly minimum, either. You will pay a $10.00 monthly fee and a $7.95 per month fee for PCI compliance. Other fees (most of which are per-occurrence, such as chargeback fees) are fully disclosed on their website. Like many of our other favorite processors, Dharma doesnât have long-term contracts, either. Billing is month-to-month, and thereâs no early termination fee if you close your account.
Good Option for Nonprofits and B2B Payments
â Provides discounted rates for nonprofits
â Exceptional customer service
â Transparent interchange-plus pass-through pricing
â Proven track record with nonprofits Free MX Merchant Software includes:
â¢ Level 2 and level 3 data for lower interchange rates on B2B processing
â¢ Virtual terminal
The company uses interchange-plus pricing exclusively and lists their rates right on their website. Hereâs their current processing rate information:
Storefront: interchange + 0.25% + $0.10 per transaction
Virtual: interchange + 0.35% + $0.15 per transaction
Restaurant: interchange + 0.20% + $0.07 per transaction
If you need a terminal, Dharma will sell you either the First Data FD-130 or Verifone Vx520. Theyâll also reprogram your existing terminal, if you have one. Need a POS system? Dharma offers the Clover Mini, and will sell it to you outright rather than leasing it. If you need a mobile payments system instead, Dharma offers the Clover Go for $99.00, plus a $10.00 monthly fee. For $139, you can upgrade to the Clover Go Contactless, which connects via Bluetooth instead of your phoneâs headphone jack.
Dharma doesnât have a minimum monthly volume requirement, but they do acknowledge that their fees and rates arenât the lowest on the market for businesses that process less than $10,000 per month. Youâre still free to sign up if you need a full-service merchant account, but they recommend either PayPal or Square if you donât.
Transparent interchange-plus pricing
Minimal account fees
Full range of services and equipment for both retail and online businesses
Great customer support
Not a good fit for low-volume (less than $10,000 per month) accounts
For more information on Dharma, see our complete review here.
Headquartered up in the Great White North, Helcim (see our review) provides outstanding service and affordable prices to both Canadian and US-based merchants. They offer interchange-plus pricing exclusively, and their website features one of the most detailed and transparent explanations of their rates and fees that youâll find anywhere.
Transparency and honesty are major themes with Helcim, which is something you wonât often find with many other providers. Reading their website will give you a quick education on all the sneaky, misleading tricks that other companies use to squeeze more money out of their merchants. Fortunately, you wonât have to worry about this kind of behavior with Helcim. Not only do they fully disclose their processing rates, account fees, and contract terms, but they also provide all their services at fair, competitive prices.
Good Option for Canadian Businesses
â No early termination fees
â Transparent interchange-plus pricing
â Exceptional reputation in Canada
â High-quality all-in-one payment platform
â Great educational material Proprietary Helcim Commerce solution includes:
â¢ Point of sale software
â¢ Inventory management
â¢ Billing and invoicing
â¢ Virtual terminal
Visit the Helcim website
Read our Helcim review
Unlike many of their competitors, Helcim encourages merchants to buy their credit card terminals outright rather than leasing them. The company offers a number of popular models, most of which are EMV-compliant. For a little extra cash up front, you can also get an NFC-capable terminal that supports Apple Pay and other similar mobile payment methods. If you already have a terminal, theyâll reprogram it to work with their system for free. Unfortunately, Canadian EMV-compliant terminals are not designed to be transferred or resold, so Canadian customers will have to use the rental option or buy a new machine. Renting on a month-to-month basis (which is not the same as leasing) is usually the best choice for Canadian merchants.
Helcim offers three basic pricing plans: a Retail Plan, an eCommerce Plan, and a combined Retail + eCommerce Plan. The Retail Plan costs a flat $15.00 per month. This fee covers PCI compliance, and there are no account setup or statement fees. Thereâs also no monthly minimum. All swiped transactions are processed at a rate of interchange + 0.25% + $0.08 per transaction.
Helcimâs eCommerce Plan works the same way, but it costs $35.00 per month. This gives you access to the companyâs proprietary Helcim Payment Gateway, which includes support for recurring billing, a customer information storage system, shopping cart integration, and a customizable payment gateway API. The plan also includes a virtual terminal that allows mail order or telephone order businesses to key in transactions on any computer. All online (i.e., card-not-present) transactions are processed at a rate of interchange + 0.45% + $0.25 per transaction.
The Retail + eCommerce Plan includes all features of the other two plans, and costs $50.00 per month. Processing rates are the same as for the other two plans.
There are few downsides to Helcimâs services. One way theyâre able to keep costs so low is to exclude high-risk merchants from signing up. This policy lowers the companyâs overall risk profile, but it also means youâll be out of luck if you meet their high-risk criteria. Because they charge a monthly fee (albeit a very reasonable one), theyâre also not quite as affordable as Square, PayPal, etc. if youâre processing below $2,500 per month. Weâre also still waiting for the company to introduce an EMV-compliant mobile card reader. They currently offer a basic, magstripe-only reader that requires a headphone jack to communicate with your smartphone or tablet.
Extremely transparent fee structure
Very competitive rates for businesses processing over $1,500 per month
Excellent customer service and support
Not suited for very small businesses processing less than $1,500 per month
Not available for high-risk merchants
Mobile card reader isnât EMV-compatible
For more information, see our complete review here.
Popular (But Less Reliable) Inexpensive Options
Everyone has heard of PayPal (see our review). And just about everyone uses it. With an active user base of almost 200 million customers in 200 markets around the world, itâs a good bet that most of your customers use it, too. But can the company fill all your processing needs? The short answer is yes. PayPal has all the features you would need to run a business â either retail or eCommerce â using just their payment processing services and equipment. But would this be cost-effective? Hereâs where it gets complicated. While the company offers flat-rate pricing and no monthly fees for its basic accounts, those flat-rate prices are kind of on the high side. Also, if you need features such as a virtual terminal, your account isnât free. Instead, itâs $30.00 per month, plus your processing charges.
PayPal doesnât offer true, full-service merchant accounts. Instead, they function as a payment service provider (PSP), which keeps costs relatively low, but also means that theyâre quick on the trigger to freeze your account if they suspect that fraud has occurred. Like most PSPs, they donât have long-term contracts and donât charge early termination fees. Billing is month-to-month, and an account that doesnât have a monthly fee is good for a business that only processes credit card transactions occasionally.
PayPalâs basic rate for online transactions is 2.9% + $0.30 per transaction. International payments and transactions processed through their virtual terminal cost more, while registered charities and mobile payments get a discount. PayPal fully discloses their rates on their website, so youâll always know in advance what youâll be paying.
While PayPal is designed primarily for eCommerce businesses, the company also supports retailers through integration with numerous third-party mobile POS systems and their own mobile payments system, PayPal Here. The latter now includes a Bluetooth-enabled EMV card reader. While many companies offer a free virtual terminal, but charge a monthly fee for the payment gateway needed to use it, PayPal does just the opposite. Their PayFlow Payment Gateway comes with no monthly fee, but if you also need a virtual terminal, youâll pay $30.00 per month for it. Thereâs also a small additional per-transaction processing charge.
While these are all great features, there are also some not-so-great things about PayPal that you should be aware of before you sign up. Customer support through their telephone support line is very inconsistent. Some customer service representatives are quite knowledgeable and helpful, while others are not. Fortunately, the company provides an online knowledgebase that should help you solve common problems on your own. As weâve mentioned, sudden account holds or terminations are also a possibility. If you simply canât afford to lose access to your account temporarily, consider a different option.
For some businesses, PayPal is really all you need. If you donât need a virtual terminal or any of the other features of the $30 PayPal Payments Pro plan, you can avoid monthly fees altogether and operate on a pay-as-you-go basis. For larger businesses and those with more specialized needs, PayPal makes an excellent secondary payment option on top of your regular merchant account.
No monthly fees (for standard account)
Transparent flat-rate pricing
Most customers have a PayPal account
High flat-rate processing charges
Frequent account freezes, holds, and terminations
Inconsistent customer support
For more detailed information about PayPal, see our complete review here.
Just like Square is popular with small retail businesses, Stripe (see our review) is the darling of the eCommerce world. The company functions as a payment service provider (PSP), aggregating accounts and keeping costs low for their clients. There are no monthly fees, and their flat-rate processing plan is extremely simple.
Stripe is so focused on eCommerce that they donât offer much of anything to retailers. There are no credit card terminals, POS systems, or even mobile payments systems for your smartphone or tablet. So, if youâre a retailer, you can skip right on ahead to the next company profiled below. Stripe is not for you.
eCommerce-only merchants, on the other hand, will find a very robust variety of services to help them sell online. Integration is the name of the game at Stripe, and their payments processing service works with just about every online shopping cart on the market. They also have a vast library of APIs that allow businesses to customize the interface between Stripe and their websites. If youâd like to sell your products through your own app as well as on your website, they offer an impressive in-app purchasing capability.
So, how much does all this techy goodness cost? The short answer is not much â at least under certain circumstances. Since all your transactions will be processed online without a physical card being swiped or dipped, Stripe charges a flat 2.9% + $0.30 for all credit and debit card transactions. eCheck (ACH) and Bitcoin payments are charged a mere 0.8% per transaction. This is the same rate that Square and PayPal also charge for online transactions. There are no additional account fees, although you will be charged $15.00 for each chargeback. Chargeback fees are unavoidable with any processor, but unlike most companies, Stripe will refund your money if the chargeback investigation comes out in your favor.
You also wonât have to worry about long-term contracts or early termination fees, as Stripe bills on a month-to-month basis. This is a useful feature for a growing eCommerce business, as Stripeâs flat-rate pricing suffers the same flaw that plagues Square and PayPal: for a high-volume business, their flat-rate pricing is actually more expensive than what a full-service merchant account can provide through interchange-plus pricing.
While Stripe has some very impressive features, it also has a few serious drawbacks. Like other payment service providers (PSPs), account holds and terminations occur frequently and without notice. Stripe uses a machine learning-enabled algorithm to scan accounts for possible fraud, and itâs definitely programmed to err on the side of caution. This wouldnât be so bad if you could call up a human customer service representative on the phone and resolve the situation. Unfortunately, you canât â Stripe doesnât offer telephone support at all. Instead, youâll have to contact the company through email and wait for a response. Judging from the many complaints about Stripeâs customer service, the quality of those responses leaves a lot to be desired.
Despite its shortcomings, Stripe is a good choice for a new eCommerce venture. Youâll enjoy pay-as-you-go service with no monthly fees, and you wonât have to worry about long-term contracts. The companyâs extensive library of developer tools can offer you options that you might not be able to find with other providers. Just be aware that when your business grows beyond a certain point, youâll need the security and reliability of a full-service merchant account. Youâll also save money on processing charges by switching to interchange-plus pricing.
Simple flat-rate pricing structure
No additional fees or long-term contracts
Huge API library for developers
Flat-rate pricing is more expensive than interchange-plus for high-volume merchants
Frequent account holds and terminations
No telephone customer support
For more information, see our complete review here.
As youâve probably noticed by now, pricing for credit card processing is a ridiculously complicated subject. With dozens of interchange rates and a wild assortment of fees, trying to figure out how much accepting credit cards is going to cost your business inevitably comes down to guesswork. While you can make a reasonable estimation based on your processing history and your business type, itâs not realistic to expect that youâll be able to come up with a precise figure. Fortunately, the companies weâve profiled here fully disclose their processing rates and fees, making your job of estimating your costs much easier.
Weâve only listed six of the most popular and most affordable processors here, so be aware that the cheapest processor for your particular business might not be one of them. There are plenty of other providers out there who are also competing for your business, so check them out, too!
Here are a few very general rules of thumb regarding merchant account pricing:
If your business has a low processing volume, youâll want to find a provider with low monthly and annual fees. One of the most appealing aspects of Square or PayPal is that they donât charge any monthly fees. This is a great feature if your business is seasonal or you only occasionally have a need to accept credit cards. Processing rates wonât be as important for low-volume merchants.
If your business has a high processing volume, fees arenât as important, and youâll want to get the lowest processing rates you can find. Paying one or more monthly fees for a merchant account is an insignificant expense for a larger business, but higher processing rates can make a serious dent in your profits.
Carefully analyze both the percentage rate and the per-transaction processing fee when evaluating rates. While youâd ideally like them both to be low, which one is more important will depend on your average transaction size. If you process a lot of smaller transactions, a $0.30 per transaction fee can add up quickly. On the other hand, if your transactions are usually larger, you wonât need to be as concerned with the per-transaction fee, and should try to get the lowest percentage rate you can find.
While all the companies weâve profiled here provide excellent service at an affordable cost, some are better suited to particular types of businesses than others. Square, for example, works best for very small retail businesses. PayPal and Stripe, on the other hand, are a better fit for small eCommerce merchants. Full-service merchant account providers like Helcim, CDGcommerce, and Dharma are more well-rounded, but CDG is a better fit for smaller businesses, while Helcim and Dharma work better with larger ones. For a side-by-side comparison of some of the companies listed here (and a few other excellent providers), please see our Merchant Account Comparison Chart.
Best Choice For
Small-ticket, Canada,Â Mobile, eCommerceÂ
All businesses, Mobile, Retail
Large-ticket, All-in-one, Recurring billing
The post The Cheapest Credit Card Processing Companies appeared first on Merchant Maverick.
Unless youâre running a purely eCommerce business, youâre going to need a credit card terminal to accept credit cards. If your business is large enough, or if you operate out of multiple locations, you might need more than one. Credit card terminals come in many shapes and sizes, from simple wired terminals that arenât much bigger than a smartphone up to fancy POS terminals that can do much more than just process credit card transactions.
Procuring terminals for your business can be an expensive proposition for a first-time small business owner. Because of this, many traditional merchant account providers have used leasing arrangements to supply their merchants with the hardware they need. If you get anything out of this article, above all remember this: Donât do it! While that low monthly leasing fee might seem like a bargain compared to the cost of buying a terminal, itâs anything but.
How Leasing Works
Almost all terminal leasing contracts contain the same two provisions: (1) a 48-month (four-year) term, and (2) a clause that makes the lease completely non-cancelable. The standard four-year term deliberately takes advantage of the fact that most merchant accounts start with a three-year term, and automatically renew for one-year periods after that. In other words, even if you successfully close your merchant account after the three-year period is up, youâre still on the hook for your terminal lease for another year. Youâll be paying for equipment that you donât actually own and wonât even be able to use at that point.
The non-cancelable provision in leasing contracts is far and away the most onerous thing about them. Once the leasing company has your bank account information, theyâll keep deducting monthly leasing fees from your account until the contract expires, regardless of the state of your business. Even if youâve closed your business and shipped the terminals back, theyâll keep charging you under the terms of your lease. Deliberately breaking your lease before it expires puts you on the hook for an immediate payment of all remaining months of your contract.
Those monthly lease payments can seem tempting, especially if youâre trying to start a new business on a shoestring budget. What the sales representatives pushing these leases donât tell you, however, is that in addition to a monthly leasing fee, youâll also pay sales tax and a monthly equipment insurance fee. Hereâs a hypothetical example: Letâs say you can lease a terminal for âonlyâ $30.00 per month. Add in $5.00 per month for insurance and 8% sales tax, and youâre actually paying $37.80 per month. Multiply that by 48 months, and the true cost of the contract comes out to $1,814.40. Yikes! Considering that a terminal that leases for that amount can usually be purchased outright for under $300, itâs clear that youâre being ripped off.
Myths About Terminal Leases
If terminal leases are such an obvious rip-off, why do merchants sign up for them? There are several reasons for this. For one thing, the leasing companies have a number of arguments in favor of leasing that can be very persuasive if you donât do your homework. Hereâs what theyâll tell you:
Your upfront costs will be lower. Yes, that first monthâs payment will be lower than buying a terminal outright. If you need multiple terminals, youâll save even more â for a few weeks. After that, the costs just keep adding up until theyâve exceeded the cost of buying a terminal by several hundred percent.
Your leased terminal will be compatible with your merchant account. Again, this is true on its face. What they arenât telling you is that you can buy your own terminal and have it re-programmed by your merchant account provider to work with their system. While some providers will charge you a re-programming fee, many of the better providers will re-program your existing equipment for free. Even if you have to pay a re-programming fee, youâll still save hundreds, if not thousands of dollars over leasing.
Your leased terminal is insured in case it gets damaged or stops working. Itâs true that if you buy your terminal outright, youâll have to find either a way to insure it or go without the insurance. If you buy your terminal directly from your merchant account provider, they might be able to cover this. If you buy your terminal online through a third party, it wonât come with any insurance protection. Hereâs the thing, though: credit card terminals arenât nearly as delicate as many of the other electronic gadgets we rely on every day. Theyâre rugged, and absent deliberate abuse theyâll last for years â possibly even decades â without needing repairs. Obsolescence is a bigger threat to your terminals than physical damage. Given the horrible reputation that terminal leasing companies have for customer service and support, I wouldnât expect much help if you actually had to make a claim. Overall, terminal insurance is both expensive and unnecessary.
Leasing costs are tax-deductible. Like any legitimate business expense, you can deduct the cost of your terminal lease on your taxes. Of course, you can also deduct the cost of buying your terminals outright just as easily. Donât let a sales representative convince you that paying 6-10 times the retail price for a terminal is a good deal because you can write it off on your taxes. Youâll still come out way ahead overall by buying your own terminals.
What Happens at the End of Your Lease?
Hereâs the worst part about leasing: At the end of your lease, you still wonât own your terminals. They remain the property of the leasing company. Your options at this point vary depending on which leasing company youâre working with. Here are the more common possibilities.
You can terminate your lease and return your terminals. Youâll be out from under your lease, but now you wonât have any way to process credit card transactions.
You can buy the terminals from the leasing company. Some companies will let you buy your terminals at the end of your lease, but theyâll usually charge you much more than theyâre really They wonât give you any credit for all those lease payments, either.
You can continue leasing your equipment. Leasing companies will usually allow you to continue leasing your terminals after your initial four-year lease expires. While some companies will allow you to continue leasing on a month-to-month basis, others will put you on another four-year contract. In either case, itâs just not worth it.
How Do They Get Away with This?
If youâve gotten this far, youâre probably asking yourself why anyone would agree to a terminal lease. Unfortunately, it usually comes down to merchants falling for misleading, high-pressure sales tactics from the representatives pushing the lease. Unethical sales agents will tell you that itâs more economical to lease than to buy. They might also tell you that your merchant account provider only offers leases and that if you buy your own equipment, it wonât be compatible. None of this is true.
Credit card terminals used to be a lot more expensive than they are today. Back then, it might have made at least some economic sense to lease a terminal. Today, thanks to increased competition and advances in technology, you can buy a modern, EMV-compliant, NFC-capable credit card terminal for as little as $120. Youâll still need to have the software load installed to make it compatible with your merchant account, but some of the better merchant account providers will do this for free. Even if you have to pay a re-programming fee, itâs still far less expensive than leasing a terminal.
Some of the more unethical sales agents will deliberately obscure the fact that your merchant account provider and your terminal leasing company are two different entities. This mostly comes down to the fact that they donât want you to see your leasing contract before you sign it. As weâll see later, thereâs evidence that some of the most unethical leasing companies have gone so far as to deliberately forge merchantâs signatures on their leasing contracts. The best way for you as a merchant to avoid this kind of blatantly illegal conduct is to avoid terminal leases completely.
While there really arenât any ethical, honest terminal leasing companies that we can recommend to you, we have assembled a rogueâs gallery of the worst companies that you should stay away from. Youâre quite likely to run into one or more of these companies in your search for a merchant account, so itâs important that you understand how they operate and how to protect yourself. Here are the companies that you never want to do business with:
First Data Global Leasing (FDGL)
First Data Global Leasing is a subsidiary of mammoth First Data, which is probably the largest merchant account provider in the United States. Although weâve reviewed First Data favorably, we canât say the same thing about First Data Global Leasing. With expensive, non-cancelable leases ranging from 24 to 48 months in length, FDGL has generated a huge number of complaints from merchants for its business practices.
FDGL primarily leases proprietary First Data-branded credit card terminals and POS systems, including the very popular Clover Station POS. While First Dataâs hardware offerings are all solid products, itâs much more affordable in the long run to buy them rather than leasing them. The Clover Station POS, for example, can be bought for around $1,000.00. While this is a big investment for a small startup business, itâs a lot less than what youâd pay overall for a four-year lease. Youâll also own your equipment outright from the beginning, rather than having to either send it back to FDGL or pay a second time to buy it after your lease expires.
FDGLâs website is remarkably basic, and doesnât provide much information about either the terms of their leases or the leasing fees associated with their products. They do, however, include a brief FAQ that should be enough to convince you that leasing through them is a terrible deal. Hey, at least theyâre honest.
You should also check out First Dataâs Merchant Services Terms and Conditions, which includes a copy of the leasing contract. Itâs on pages 31-32, and Iâve highlighted some of the most egregious provisions. Because FDGL is part of First Data, you wonât have two separate contracts for your merchant account and your equipment lease. At the same time, itâs easy for merchants to skip reviewing this section when they sign their contract since itâs buried in the middle of 48 pages of fine print.
FDGL doesnât have a separate profile with the BBB, so youâll have to look under the main First Data profile. Here, youâll find that First Data has an A+ rating â despite being unaccredited by the BBB and having over 1,000 complaints on file. Looking through those complaints, itâs apparent that a significant number of them involve issues with FDGLâs leasing terms. Unfortunately, responses from First Data make it very clear that they will strictly enforce the terms of the lease in almost all cases.
Ripoff Report has an additional 72 complaints filed against FDGL, including several merchants alleging that FDGLâs sales agents forged their signatures on leasing contract documents. At ConsumerAffairs.com, youâll find another 56 1-star reviews from merchants who have been abused by this company. Thereâs even a Facebook group called First Data Global Leasing Victims, where merchants have posted complaints about FDGL and its leasing contracts.
When shopping around for a merchant account, you need to be aware that First Data has a very extensive network of resellers, some of whom use FDGL to lease their equipment. Merchant account providers such as Elite Pay Global, TransFirst, and many, many others use First Data as their backend processor and offer First Data terminals and Clover POS systems. If youâd like to use First Dataâs equipment or take advantage of the services such a large processor can provide, take a look at Dharma Merchant Services. One of our favorite providers, Dharma utilizes First Data (and other processors) but doesnât partner with FDGL. In fact, they donât lease terminals at all. Theyâll either sell you a terminal at a fair price or re-program your own equipment for a reasonable fee.
Northern Leasing Systems, Inc.
If you think FDGL is a terrible company, I have bad news: there are even worse leasing companies out there that you need to avoid at all costs. Based in New York City, New York, Northern Leasing Systems, Inc. has been in business since 1991. In that time, the company has managed to build such a terrible reputation with merchants that itâs resorted to doing business under numerous DBAs and through various subsidiaries, including Golden Eagle Leasing LLC, Lease Finance Group LLC, MBF Leasing LLC, Lease Source-LSI, LLC, and others.
Like most terminal leasing companies, Northern Leasing uses a standard contract that runs for four years and is utterly non-cancelable. If youâd like, you can review their Lease Agreement right here. Itâs pretty clear from even a brief overview that the contract canât be canceled and you canât break it early without having to pay off the remaining months of the contract. So why do merchants ever agree to this? The truth is they often donât know what theyâre getting themselves into when they sign up for a merchant account. Northern Leasing usually doesnât sell or market their terminal leases directly. Instead, they partner with many different merchant account providers, who package their âservicesâ as part of setting up a new merchant account. Merchants often donât understand that their lease is through a separate company and not their merchant account provider. Northern Leasingâs contract is buried inside the fine print of a merchantâs contract with their merchant account provider, and many merchants donât read everything in their contracts before signing them. Also, sales representatives â particularly independent agents â often do a poor job of explaining the terms of the equipment lease when trying to sell a merchant account.
Northern Leasing is not accredited by the BBB and currently has an F rating. There have been an unbelievable 631 complaints filed against the company within the last three years, with 260 complaints being filed within the last twelve months. Even more complaints can be found on the BBB profiles of several of Northern Leasingâs subsidiaries.
On the companyâs BBB page, youâll also find details about a lawsuit filed against Northern Leasing and several of its subsidiaries in April 2016 by the New York Attorney General. The company is accused of fraudulently forging merchantâs signatures on contracts and illegally obtaining default judgments against merchants who have stopped making payments on their leases. The lawsuit seeks compensation for merchants who have been harmed by Northern Leasingâs predatory and illegal practices, and the complete dissolution of the company. If youâve been victimized by Northern Leasing or one of their subsidiaries, by all means go to the Attorney Generalâs press release about the lawsuit. It contains websites and phone numbers where you can find out more about the suit and get your claim added to it.
Northern Leasing also has 282 complaints on Ripoff Reports, with the same allegations being raised. You can also find many other complaints on the web. In fact, a search for âNorthern Leasingâ mostly leads to consumer protection websites where merchants have complained about the companyâs business practices.
Unfortunately, many merchant account providers continue to use Northern Leasing to provide leased terminals to their merchants. These providers include Central Payments (CPAY), Elite Pay Global, TransFirst, Velocity Merchant Services, and many others. While many of these providers are solid, reputable companies themselves, youâll definitely want to avoid leasing your equipment from Northern Leasing.
Lease Finance Group (LFG)
Based in Chicago, Illinois, Lease Finance Group (LFG) has been happily ripping off unsuspecting merchants since 1992. The company is actually a subsidiary of Northern Leasing Systems, Inc., and pretty much everything weâve said about Northern Leasing applies to LFG as well.
LFG claims on their website to be the â#1 Point of Sale (POS) equipment lessor in the country.â Whether itâs actually true or not, this is a dubious distinction at best. LFG utilizes the same absurd non-cancelable four-year leases to charge merchants as much as ten times the actual retail value of their terminals over the life of the lease. Itâs clear from LFGâs primitive, bare-bones website that theyâre not directly marketing their âservicesâ to merchants. Instead, theyâre looking to partner with merchant account providers so they can sneak their awful lease contracts into the overall contract between the merchant account provider and the merchant. This way, merchants often overlook the onerous terms of the lease contract, and in many cases donât even know that they have a separate contract with LFG at all.
This sort of unethical behavior is compounded by independent sales agents, who often fail to disclose any of the terms of the lease when signing merchants up for an account. Even the most inexperienced merchant would refuse to agree to one of these leasing contracts if they knew and understood what the terms of the lease entailed.
Lease Finance Group is not accredited by the BBB and currently has an F rating. The company currently has 379 complaints, almost all of which involve the absurd terms of their leases and the companyâs tendency to continue charging merchants after their leases have expired. There is also an alert for the lawsuit brought in April 2016 by the New York Attorney General against LFG, Northern Leasing, and several of their other DBAs. While this action is still making its way through the courts, itâs encouraging to see that state governments are finally cracking down on this kind of unethical and illegal behavior.
Like its parent company, the internet is littered with complaints against LFG, including 598 complaints on Ripoff Report alone. Unfortunately, LFG is still being used by TransFirst and many other merchant account providers to supply leased equipment to their customers. If youâre looking into a merchant account provider, be sure to read our reviews and any other reviews you can find online. Merchant account providers rarely disclose the identity of their leasing partners on their company websites, and you certainly canât count on a sales agent to give you an honest answer about this, either.
LADCO Global Leasing Solutions
LADCO Global Leasing Solutions is a subsidiary of Elavon, one of the largest merchant account providers in the United States. The company is located in Knoxville, Tennessee (with a second office in Thousand Oaks, California) and appears to have been in business since 1979. While Elavon provides a decent line of products and services for merchants, the same cannot be said about LADCO. Like all our other worst-rated leasing companies, the company relies on noncancelable, four-year leases to extract far more money from their merchants than what their equipment is worth.
Elavon goes out of its way to avoid disclosing its relationship with LADCO, and for a good reason. The leasing company has a terrible reputation among merchants for high prices and unfair leasing contracts. LADCOâs reputation is so bad that it no longer maintains its own company website. The companyâs former site, www.ladco.com, now re-directs to Elavonâs website. So much for keeping the relationship between the two entities a secretâ¦
While LADCO and other leasing companies go to great lengths to keep merchants from fully reading their contracts, weâve found copies of them on the internet. Even a brief look at LADCOâs Equipment Finance Lease Terms reveals how one-sided these contracts are. The first thing youâll (hopefully) notice is that the word noncancelable is right in the title of the agreement. Merchants often donât understand just how strictly this term is enforced. What this means is that you are liable for the full cost of all 48 monthly payments (and possibly more) from the moment you sign your merchant account provider contract. LADCO will not let you out of your contract under any circumstances. Did you sell your business? Too bad. Did your business fail and you are shutting down altogether? Again, too bad. Iâve even seen complaints where the business owner has died, and the executor is frantically trying to get the lease canceled and the equipment returned â to no avail.
You should also note that LADCO, like most other leasing companies, provides their equipment on an âas isâ basis, with no warranties or guarantees whatsoever. In other words, if your equipment doesnât work, itâs up to you to contact the manufacturer and get it fixed â which you have to pay for. The fact that your monthly lease payments also include charges for âinsuranceâ that wonât do you any good just makes it that much worse.
LADCO does not have a separate profile with the BBB, but you can find plenty of complaints against them under Elavonâs profile for their Knoxville location. While the profile shows 182 complaints over the last three years, some of them refer to problems with leased equipment and many others refer to other aspects of Elavonâs merchant account services. There are also 132 reports on Ripoff Report alleging similar problems with LADCO.
Like Northern Leasing and its numerous subsidiaries, LADCO has frequently found itself in legal trouble over its business practices. In April 2012, the Ventura County District Attorneyâs office settled a case against LADCOâs Thousand Oaks office after uncovering evidence that sales agents were misrepresenting just about everything in their leases, including the length of the lease, the fact that it couldnât be canceled, and the true cost of the lease. LADCO was also apparently leasing used equipment and misrepresenting it as being new, among other practices. There was also evidence that sales agents were forging merchantâs signatures on their leases. To settle the lawsuit, LADCO agreed to pay over $418,000 in fines and restitution, and to be bound by a permanent injunction prohibiting similar violations of the law. Unfortunately, this settlement only seems to have brought relief to merchants located in Ventura County.
The Elavon BBB profile also discloses a similar legal action by the Tennessee Attorney General in 2015. Under the terms of this settlement, LADCO is providing refunds to affected merchants. Again, this settlement seems only to apply to merchants in Tennessee. Despite these legal settlements, the complaints keep coming in from angry merchants, and itâs clear that LADCO hasnât reformed its business practices in any significant way in response to these legal setbacks.
Needless to say, if youâre considering signing up with Elavon for a merchant account, youâll want to avoid being stuck with a terminal lease through LADCO. Be aware that many of Elavonâs re-sellers, including Costco Merchant Services, also use the company to furnish leased equipment. Helcim, one of our favorite providers, uses Elavon as a processor but sells terminals directly rather than offering leases through LADCO.
Exceptions to the Rule
While in almost all cases we recommend that you buy your terminals or POS systems outright, there are two notable exceptions to this general rule. One exception is if youâre working with CDGcommerce, one of our favorite providers. If you need a credit card terminal, CDG will provide one at no upfront cost to you. The only thing youâll have to pay is an annual $79.00 fee for insurance and equipment upgrades. This works out to $6.58 per month â a fraction of what the leasing companies will charge you. Unlike the terminal leasing companies, your contract with CDG is month-to-month, so youâre free to close your account and return your terminal without having to pay anything extra.
The other exception applies only to Canadian merchants. In Canada, EMV-compliant terminals are not designed to be re-sold, so youâll have to rent them instead of buying your own. Helcim, our favorite Canadian merchant account provider (and one of the best choices for US-based merchants as well), will rent you a terminal for a reasonable fee. Helcimâs contracts are also month-to-month, so you can return the terminal at any time with no penalty.
Itâs not hard to see how the leasing companies make their money. With credit card terminals being more affordable than ever, itâs easy for a company to buy a huge number of terminals at wholesale prices and then lease them out to unsuspecting merchants. The initial cost of buying the terminals is recouped within the first few months of the lease, and from there itâs pure profit. By providing the equipment on an âas isâ basis, the company avoids the additional cost of servicing terminals once theyâve been leased. In fact, itâs apparent that none of these companies have an actual customer service department to speak of. The incredibly one-sided nature of the leasing contracts makes them a literal âlicense to steal.â
How can you protect yourself? First and foremost â buy your own equipment. If you donât have the money to pay for your terminals, put it on your business credit card or consider a merchant cash advance. Even with the additional interest, youâll save a lot of money over getting stuck in a lease. Donât ever let a sales agent tell you that you have to use their leased terminals. As long as you use a terminal that your provider supports, you can have it re-programmed to work with their service. While some providers will re-program your equipment for free, others will charge a fee for this. Re-programming fees can run as high as $150, but theyâre usually much less. In any event, youâll still save money over leasing.
Also, beware of âfreeâ terminal offers. While some of these offers are legitimate, many are not. Yes, there are a few providers out there that will let you use a terminal for free as long as you maintain your merchant account with them. Other providers will include the fee for the terminal in your monthly account fee, so the terminal isnât really free. In the worst cases, a sales agent will deliberately lie to you and tell you youâre getting a free terminal, when theyâve actually signed you up for one of these leases without your knowledge or consent. Donât accept a âfreeâ terminal offer without checking it out first.
The unscrupulous business practices of the leasing companies weâve profiled here represent sociopathic capitalism at its worst. While many of the more reputable merchant account providers have abandoned terminal leases altogether in favor of selling the terminals directly (or allowing you to bring your existing equipment), there are still plenty of other providers who are still pushing terminal leases. Itâs reassuring that a few state and local government agencies are finally beginning to crack down on these shady companies, but their actions so far donât seem to have put much of a dent in their business activities. Until a more comprehensive legal remedy becomes available that puts these companies out of business, the best way to protect yourself is simply to avoid doing business with them completely. If youâve had any experience with any of the companies weâve profiled in this article, please feel free to tell us about it in the comment section below.
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