Difference Between Medical Equipment Loans and Leases

Difference between Equipment and Loans
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New and seasoned medical practices alike have to deal with the high costs associated with medical equipment. Whether you need to buy a new type of equipment for the first time or have outdated equipment that needs an update, you have medical equipment financing options to get the capital you need. Before you decide between buying or leasing, read through this article and weigh the advantages of each.

What Are the Medical Equipment Financing Options?

When it comes to medical equipment funding, you essentially have two choices. You can obtain an equipment business loan to buy, or enter an equipment lease contract with a buying option at the end. Which is best for your practice depends on a few factors including the type of equipment that you need, how quickly it can become obsolete, and your qualifications. 

medical equipment financing options

Buying New or Used

Some medical equipment should be purchased new. However, when the budget is the primary concern but you intend to buy, buying used or refurbished equipment may be an option. The U.S. Food and Drug Administration has strict regulations and requirements for refurbished equipment to ensure that nothing compromises patient treatment.

Types of Equipment Loans

Equipment loans are specifically for purchasing equipment, and they use the equipment as collateral. Qualifying for a medical equipment loan usually means that you need a good business credit history or good personal credit history if your business is new. Examples of medical equipment loans include:

  • SBA loans offer longer terms and lower rates, but the application process is long and tedious.
  • A short-term loan is great for practices that have only been in business for a few years because they have fewer qualifications.
  • A line of credit allows you to purchase equipment and repay as needed.
medical equipment loans

Leasing

Medical equipment leasing is somewhat like leasing a car. The equipment is in your possession, but you do not own it. You make a predetermined monthly payment that is typically lower than a loan payment. When your lease ends, you return the equipment to the financing company. This is a great option for equipment that is updated regularly. If you would like to keep it, you usually have the option to buy the used equipment at the end of the lease. 

Types of Leases

When you lease, all the terms and conditions are predetermined, but you have options at the end. This makes leasing a better choice if you are not sure if you need to keep the equipment. If you decide that leasing is a better option for you, there are two common types to consider:

  • The buyout option refers to a leasing plan that allows you to buy the title from the financing company at the end of your lease. This is sometimes called the $1 buyout option because you pay $1 for the title.
  • A Fair market value lease is a great option for newer practices because it allows you to lease equipment at a lower cost. Part of the cost is deferred to the end of the lease. When the lease is up, you can choose to purchase the equipment, return it, or continue to lease.

What Are the Advantages of Buying New Equipment?

Many medical providers prefer purchasing new equipment when the cost is not a defining factor. Purchasing new equipment will always be more expensive than buying used. However, there are several advantages to consider:

  • It simplifies the insurance process. Insurance companies notoriously search for ways to deny claims. Medical professionals often find it easier to make claims when the equipment they use is up to date.
  • Your equipment has a warranty. Used equipment is typically no longer covered under warranty. If anything goes wrong, you are responsible for all repair costs and replacement parts. 
  • You can market your practice as advanced. Medical science is constantly evolving, and medical equipment evolves to accommodate it. Your patients want the best, and having the latest technology promotes confidence in your practice.
  • It makes repairs easier. New equipment typically has greater availability of spare parts. 
  • You have access to post-sales services. Buying new equipment often comes with access to tech and repair services that you do not have with most used equipment sellers. 
medical equipment leasing solutions

What Are the Advantages of Leasing Medical Equipment?

There are several advantages to leasing over purchasing. Some benefits include:

  • All services fall under a single monthly payment. Buying new equipment usually comes with additional costs, such as official training and tech support. These are not included in the final purchasing price. With leasing, everything is included, which makes budgeting much easier.
  • Equipment leases can be deducted from your taxes. The IRS does not qualify leasing as a purchase. Therefore, it can be deducted as an overhead business expense, and it does not depreciate because it is categorized as a technology solution. 
  • Financing a lease is easier than financing a loan. You do not need to meet as many requirements for a lease as you do for a loan. 
  • No down payment is required. Not needing to produce a down payment upfront means that you can put that money elsewhere in your practice. 
  • You have better asset management. Returning equipment once the lease is complete means that the financing company is in charge of disposal. 
  • The approval process is much faster. Depending on the type of loan you apply for, it can take weeks to get approval. A lease is often denied or approved within a matter of hours after an application is submitted. 
  • You have options at the end of the term. Since you can choose to return, purchase, or continue leasing the equipment, you do not have to decide what you want to do with it before you get it. You can make that decision after you have had the equipment for a while.
  • You can budget more accurately. Since there are no floating fees, you know exactly what your monthly payments will be and can budget accordingly with no surprises.

If you need multiple types of equipment, you always have the option to buy some and lease others. The best way to start is to research the average lifespan of each kind of equipment and how often it is updated. Careful consideration will lead to better budgeting. 

For more information on the difference between medical equipment loans and leases, contact the experts at Platform Funding. 

Sources: 

  1. https://www.nationalfunding.com/blog/medical-equipment-leasing/