What you need to know about medical equipment financing and leasing

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Whether a large hospital or small private clinic, leasing has become an increasingly popular way of obtaining medical equipment.

In fact, industry experts suggest that the healthcare equipment leasing market will grow at a CAGR of 6.77% through 2021. The growth is due in part to increased competition between providers, the evolving equipment market and limited capital budgets. This article will take a look at whether leasing or financing medical equipment is best suited to your needs.

How Equipment Leasing Works

Leasing medical equipment works in the same way as leasing a car.

By entering into a lease, you have the right to use the equipment without the burden of ownership. The advantages of a lease are:

• Lower payments as you’re paying for only a portion of the assets
• Reduced upfront costs (if any)
• Flexible end of term options

In the medical device market, the typical lease term is between three and five years. At the end of the initial term, you have the option to purchase, renew, extend, or return the equipment. As a technologically driven field, leasing medical equipment often proves to be one of the most financially efficient ways to ensure your practice or facility has up to date equipment without tying up significant capital.

On the topic of capital allocation, many organizations utilize a lease to efficiently manage their cashflow. The lower monthly payment and flexible end of term options operationalize the use of the equipment. As a practical example, assume the number of CT scans ordered per month is relatively consistent, yielding a predictable revenue. Compared to traditional financing or a one-time purchase, the lease maximizes the cashflow produced by the asset during the initial term of the lease.

A potential downside to leasing medical equipment is that, over a prolonged period, the continued rental payments may exceed the cost of a direct purchase. To mitigate this, make sure to exercise the end of term option that fits your practice’s requirements.

How Equipment Financing Works

Equipment financing refers to the practice of taking out a loan to pay for equipment over time. By choosing to finance equipment, you will eventually own the asset outright. This works well for organizations with strong credit and for mature technologies or for assets with a long life expectancy.

Financing is popular, in part, due to restricted capital budgets. While most equipment financing is collateralized debt, the loan amount may impact your available line of credit. Since medical equipment, such as CTs and MRIs, can cost several hundred thousand dollars, the best practice is to work closely with your financing partners.

Another aspect of financing is the additional interest cost. Debt source and your credit will determine the interest rate which should be factored into the total cost of ownership.

Advantages of Equipment Leasing

1. Control and conserve cash
You avoid the upfront costs of purchasing equipment and the lease becomes a fixed monthly line item which can help you allocate financial resources more effectively.

2. Built-in life cycle management
Leasing affords you the option to upgrade your medical equipment more frequently, with lease terms typically between 3 and 5 years. This is not only beneficial for patients, but can greatly improve operational efficiency as well. Equipment leasing allows for items which may be nearing the end of their operational life, to be readily replaced as the normal course of business.

3. Maintain strategic flexibility
Large capital purchases can tie you into a specific strategy or technology. Leasing medical equipment enables you to adapt as the industry evolves and increases flexibility for you and your organization.

4. Quick and simple application process
Provided the right financial statements, approval and execution of a lease can be quick and easy.

Advantages of Equipment Financing

1. Acquire medical assets with little or no immediate cash outlay
You will not have to part with a large lump sum payment to acquire the equipment. The capital you conserve can then be allocated to other areas of your organization.

2. Ownership
After the terms of the loan are satisfied, the title will pass to you, the owner. For mature technologies and equipment with a long useful life, this will help you maximize your return on investment.

Summary
The growth of the equipment financing and leasing industry reflects how operating budgets are being scrutinized and tightened across the industry. Which option is right for your needs will depend on what type of equipment you require and its intended use. Consider equipment leasing if you need flexibility and want to conserve capital. Consider financing your equipment if you ultimately want to own the equipment outright.

Author Bio -
Mike Myers is the VP of Healthcare at Meridian Leasing, an equipment leasing, and financing company based in Deerfield, IL. With more than 35 years of experience in the healthcare and finance industries, Mike excels at building medical equipment strategies that meet the clinical and financial needs of their clients.

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