Medical equipment is a vital intervention tool used by doctors and medical institutions for the prevention, diagnosis, and treatment of diseases. However, access to a functioning and updated medical equipment can be a challenge for small businesses. The medical technology is evolving, and so should your practice run with the advances. The use of obsolete equipment could lead to lesser standards of care, lowering patient confidence, and may result in costly malpractice lawsuits. However, buying new medical equipment outright can be costly, but there are options available to help you get that latest premium CT scanner, therapy system, test kits, or a mobile X-ray unit.
When you don’t have the cash available to purchase the equipment outright, leasing or financing medical equipment can help you with those costly upgrades. Here is everything you need to know about medical equipment leasing vs. financing to decide which makes sense for your medical practice.
Medical Equipment Leasing vs. Financing
With medical equipment leasing, you rent-out the medical practice from a financing company that purchased the equipment in exchange for a monthly payment. After the lease term expires, you return the equipment or buy it.
With equipment financing, you borrow money to finance the equipment, and after you’ve paid it off, you own the equipment.
In order to qualify for leasing and financing, most lenders will typically require you to be in business for at least six months with a credit score of 575 or higher and equipment quote from a vendor.
When Medical Equipment Leasing Makes Sense
Medical equipment leasing makes more sense when you need constant upgrades like testing kits, latest diagnostic and respiratory equipment, that likely become obsolete due to technological advancements.
Leasing is also more suitable when you need to move to another or different location and need differently sized equipment. With a short-term lease contract, you can change the terms as per your requirement at the end of the lease contract. Leasing is more suitable for newer practitioners that don’t have the funds or eligibility to pay for the cost of medical equipment.
Pros of Medical Equipment Leasing
- With a lease, you don’t have to make down payment upfront, and you can practice on expensive equipment, just after paying your first monthly payment.
- With a lease, you can frequently upgrade your equipment without having to finance it every time the upgrade is available or required. After the lease ends, you can retune the used equipment and then upgrade to a brand-new model on a new lease – making your practice keep pace with the very latest medical technology.
- When the equipment is leased, you don’t have to pay for any maintenance cost associated with the equipment to keep it in good condition.
Cons of Medical Equipment Leasing
- You don’t own the equipment after the lease ends. The lessor retains the ownership and you cannot use the equipment in your capital assets.
- The initial cost of leasing medical equipment is lower, but payments over time could add up to more than buying the equipment outright. The cost of leasing could he higher in the long-term.
- Since you don’t own the equipment in leasing, you will have less flexibility with modifications and repairs to medical equipment. In addition, you have to follow the leasing company’s rules for making such maintenance and repairs, in case the equipment breaks.
- With a lease, you are obligated to pay for the equipment even when it’s not in your use. Even if you cancel the lease agreement, you have to bear the early termination fees as well.
When Medical Equipment Financing Makes Sense
If you’re an established business with focused long-term goals, financing medical equipment makes more sense. With medical equipment financing, you own the equipment, can build value for future practice sales, and can make the essential modifications and repairs with lower long-term costs in the end. Medical equip0ment financing is also a more appropriate option when you expect less technological changes in the immediate future.
Pros of Medical Equipment Financing
- You don’t have to put up a large down payment to acquire the equipment. You can use that capital for other areas of your practice.
- The long-term cost is lower after you paid off the equipment.
- After you’ve paid off the loan, the equipment will be your capital assets – building up equity for your practice.
- Since you owned the equipment, you have the flexibility to make modifications and repairs as you see fit.
- Considering the equipment generates taxable income, you can enjoy significant tax benefits in financing it as compared to outright purchase.
- Financing equipment also offers fixed repayment schedules that are structured to fit your cash flow.
Cons of Medical Equipment Financing
- The loan can only be used for equipment only and cannot be allocated to other areas of your business. Other types of financing, such as merchant cash advances, and business lines of credit allow you the flexibility to use the financing as you see fit.
- Some lenders might require you to put up a little down payment upfront for the equipment – making the upfront cost higher.
- When you buy equipment, it can be harder to replace it when a need arises. You can’t just automatically replace it as you do after a short-term lease ends.
- Since you owned the equipment, keeping it in good condition will be your responsibility. If it breaks or goes obsolete, you’ll need to buy a new one.