In the day and age of free equipment, leasing is still a vital part of this business, and an incredible way for you to increase your earnings with a nice “pop” up front while waiting for a business to mature on the residual side. Leasing helps your prospects finance the rental of equipment usually for four or five years, with the option at the end of the lease to do one of three things: purchase said equipment for fair market value, usually 10
percent of the total amount paid on the lease; return it without further obligation; or even start a new lease with the same or new equipment.
Over the years, leasing has become increasing popular, as it also has tax advantages. You can expense the lease payments quicker than you can depreciate the equipment if you just buy it. So leasing is an important tool for business owners and ISOs. It gives you the opportunity to finance a deal when necessary instead of telling your prospect that you only accept cash. When I’m pitching a prospect first, I give them a straight cash option
of, say, $799 for a terminal printer combination, and then a lease option of maybe $29.99 a month. Leasing frees up cash they desperately need to stay afloat. And yes, you price it like a retail store. It’s a psychological thing. The brain knows it’s only a penny, but as they say, a penny saved is a penny earned! Sure, $29.99 x 48 is $1,439.52, but for new businesses CASH is KING, and $29.99 a month looks so much more appetizing than $799. Leasing also makes the rates you are offering a little less important, especially if
the other guy doesn’t offer leasing.
So your client bites, and you complete the processing paperwork and the leasing contract. The leasing contract should be signed and fully completed in advance of the installation. If you sense they do not like signing the lease in advance, then explain to them that the paperwork means nothing if after the equipment is installed they do not confirm by phone that the equipment works and that they understand the terms of the lease.
How does leasing really work for ISOs? You submit your merchant application to your processing partner, and then you usually fax in a copy of the merchant app and the signed lease contract and your terms (lease payment and number of months) with your office code to the leasing company. In the example above, you offered a payment of $29.99 a month. Well, like most things in this business, credit is a top priority, and things
are no different with leasing. Lease applications are graded mostly by credit, and for each application—just like for a term paper—you get a grade. With each grade you get a factor. For example:
ADD CHART HERE
Some ISOs will tell their clients that because of the low grade they received on the application, the payment will have to increase to make up for the loss. But not me—I’m just happy to get another deal done. And even for a D in this scenario, including the merchant account, I should make roughly $800 over the next year. Sell fifty of those in the next year, and you will make $40,000 in equipment alone! So leasing is a good option to have in your pocket depending on your market. We lease equipment through our leasing partners, but we also offer free equipment. you might say, “Well, that’s what I’m trying to avoid. I’m trying to make some money.” To offer your prospect a free terminal, you have to meet some minimal pricing
guidelines, but for the most part we don’t care if the merchant gets the free terminal or you get it to lease to the client. This enables you to recoup your $250 expense for equipment, giving you an opportunity to make over $1,000 on one client in the next twelve months. Nice!
The merchant has to pay sales tax on top of the payment price you gave them for their particular state. They will also have to pay a $5-per-month insurance charge if they cannot prove in writing that they have contents insurance for their location, so that if the terminal is stolen or burned up in a fire, the cost of replacement will be paid to the lease company.
Also, in most cases you are better off getting your equipment from your processing partner so that if there is a problem with the equipment, tech support will be able to help the client. That way you’re second on the list for a call, not first. I’ve got your back! Leasing is not foolproof, however. If your client fails to make their first or second payment, then you will be on the hook for the money paid to you by the leasing company. If they make the first two but miss the third payment, you’re off the hook, but like everything else, if you’re writing mostly “bad paper” (where a majority of your leases are going bad or are not profitable), then your leasing company will cut you off. You might want to stay in contact with your leasing company liaison to see how your leases are doing and if necessary ask them what you can do to help clients keep up with their payments. This way you are engaging them for advice and obviously not trying to rip them off!
Lets get started!
Call James Darle Jones with your questions @ 301 829 3331