What Is Medical Equipment Financing?
Medical equipment financing helps your business better represent its interests by taking pressure off your finances to reinvest into your hiring process, staff training, down payments for expansion, day-to-day medical supplies, and a host of assorted costs.
Finding the right partner to fulfill your medical equipment financing needs helps your practice or hospital minimize the financial risks of starting a healthcare business, especially in the current climate.
However, not all financing opportunities are equal. Some financial institutions are capable of taking on more risk than others. In some cases, you will have better luck seeking financing in a more limited scope, such as a limited selection of second-hand medical equipment, than simply going to the bank for a cash-based term loan to buy the equipment of your choice.
What Is Medical Equipment Financing?
Medical equipment is expensive. Managing medical equipment and supplies is also costly.
There are countless protocols for the management of disposable equipment and hazardous waste, and hospitals, as well as private practices, are constantly in need of fresh medical supplies, from gauze, syringes, and IV bags to other types of medical products such as wheelchairs and other disability aids, and much more expensive heavy equipment, such as dental units, x-ray machines, and MRI setups.
Funding for medical equipment can be difficult, especially for private practices and smaller clinics, which may lack the financial support offered by parent companies, large-scale donations, and more systematic research and medical grants. Juggling finances and being smart with the bookkeeping needs of a healthcare business is almost as crucial as staffing the medical professionals who treat patients and provide care.
The need for funding is where medical equipment financing options become valuable. Instead of taking a sum out of your working capital to finance the acquisition of new or used equipment, a medical equipment financing plan allows you to spread those costs over multiple months and prepare for the tax implications of leasing equipment. Minimize the impact the equipment might have on your cash flow and improve your competitiveness by providing the opportunity to acquire or lease equipment far beyond what you can afford through a one-time cash purchase.
Medical equipment financing opportunities range from cash loans and lines of credit to equipment leases, second-hand equipment financing, and so-called equipment loans, where a company takes out a loan to buy a specific piece of equipment while using that equipment as collateral.
Equipment financing is offered by banks and other financial institutions, as well as more prominent equipment vendors, to provide loans and lease agreements to prospective clients. Some businesses specialize in leasing medical equipment to clients with business-relevant equipment financing opportunities. In some cases, taking on a line of credit with a medical supplier for the supply of disposable medical equipment that is frequently needed also falls under medical equipment financing.
If your practice needs a new set of office equipment for the reception area or a new diagnostic tool with an average market value of several ten thousand dollars, simply taking the money out of your working capital is usually a bad idea. For one, not every private practice or clinic has that kind of working capital – and secondly, emptying your reserves all at once leaves you vulnerable to any financial difficulties that might lead to you closing shop.
While equipment financing usually carries a higher long-term cost due to interest rates, the massively lowered upfront cost can mean the difference between surviving in a competitive environment and shutting down a business. In many cases, leasing certain types of medical equipment is even better than opting for a loan – you can skip the sizeable down payment, for example, and worry solely about an additional monthly cost that you can write off as a business expense.
For medical equipment that wears out over time and requires frequent upgrades, lease options help simplify the process of upgrading to new equipment. Lease options will keep you from finding a buyer for your second-hand medical equipment or, worse yet, disposing of it without recouping some of the costs. If you haven’t considered utilizing medical equipment financing to improve your business’ competitiveness, cash flow, and survivability, then it’s essential to learn how specific financing options can benefit your practice.
How Equipment Financing Affects Cash Flow
Whereas working capital is the money you have on hand not currently tied to ongoing expenses, cash flow is the money your business is typically moving around monthly in revenue and costs. The importance of working capital and cash flow is that they will help you understand what your business needs to be successful.
Making a huge purchase with your working capital can impact your cash flow. If your incoming patient revenue stagnates, you may lack the money to finance marketing efforts, cover payroll, or acquire daily medical supplies. This can throw your entire business into jeopardy. This is where the benefits of equipment leasing come into play.
Medical equipment financing allows you to spread the cost of heavy medical equipment over multiple years, allowing for a much less significant impact on your finances, so you can continue to shoulder the bad weeks and months to reap future benefits.
Improving Competitiveness
The equipment leasing industry has significantly changed how businesses operate. Medical equipment financing options, such as leases for the newest diagnostic tools, can significantly improve your competitiveness in the local market.
Instead of paying less for a cheaper, second-hand unit, you can invest in newer technology and offer faster turnaround times on medical tests and blood samples. You can outpace the competition with the speed of your services and gain a better reputation for higher-quality patient care and greater patient satisfaction.
Enabling Expansion
Medical equipment financing options are usually readily available because the equipment serves as its collateral. However, an unsecured cash loan may be more valuable to bring your business through hard times.
The idea of leasing equipment as a business owner can be quite daunting. But with equipment financing options, you have the freedom to save your loan for an investment that you cannot find alternative financing options.
Before considering a lease or loan, discuss your options with multiple equipment financing providers, and crunch the numbers. Your practice’s age and credit history will dictate the details of your financing options. An established clinic with a few years under its belt will have an easier time seeking financing for new equipment.