Leasing pre-owned medical equipment, provides numerous opportunities to achieve important financial goals such as reducing costs.
Many health facilities are attracted to leasing pre-owned medical equipment as compared to purchasing because it usually results in lower cost procurement, keeps the cost off the balance sheet and minimizes the risk of equipment obsolescence. The same case applies to almost every industry. The type of lease that you choose will determine if it will provide better value for you than traditional financing. For instance, a capital $1 buyout lease functions more like traditional financing because you would be financing your medical equipment 100%. If you choose an operating lease, on the other hand, you will pay lower monthly lease payments and you will have the option of returning the equipment at the end of the lease period. This type of a lease will provide better value for you than a cash purchase or traditional financing.
Pros And Cons Of Leasing Pre-owned Medical Equipment
Off Balance Sheet Accounting
An operating lease is considered an operating expense in your income statement because you do not assume the risk of ownership. Your lessor will remain the owner of the pre-owned medical equipment for the entire lease period. When you use other methods of traditional financing such as loans, they will be considered as a debt
Residual Risk Is Transferred To The Lessor
At the end of your lease, you can choose to renew your lease, return the equipment or upgrade to better models. The risk of obsolescence and residual exposure will be borne by your equipment leasing company despite the fact that you already paid for 90% of the equipment’s value.
Bank Line Availability
You can maintain bank covenants when you lease pre-owned medical equipment because your health facility will not use up the available commercial credit and the key measurements of debt will not affected in any way.
Preservation Of Working Capital
Leasing pre-owned medical equipment does not involve down payments and soft costs such as taxes, delivery charges, advance payments, etc., are all included in the lease agreement. Your lease payments will also typically be less than payments you would make for traditional financing.
While leasing pre-owned medical equipment might seem like the better option for many health facilities, it also comes with some great risks. Many clinics and health facilities hardly ever look beyond low rates and so they jump into leases that are not suitable for them.
Although it is easier to obtain a lease than it is to obtain a bank loan, if you have a damaged credit score, you might attract a higher rate. Moreover, not all leasing companies have programs that cater to health facilities with low credit scores. This makes leasing a very expensive option for many start-ups.
Over time, the cost of leasing pre-owned equipment can be higher than the cost of purchasing it. To make things worse, at the end of the lease period, you may not own the equipment. Other risks include:
- Poorly defined interim rent
- Burdensome notice requirements
- Default provisions that are not mutually beneficial
- Poorly defined fair market value
- Return conditions that make compliant return difficult
What Kind Of Pre-owned Medical Equipment Can You Lease?
You can lease any type of pre-owned medical equipment ranging from up-to-date computer system to lab equipment. Almost all reception and waiting room area equipment can be leased.
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Whether you are a small out-patient facility or a health facility with multi-room hospital units, you can lease highly specialized surgical units such as surgical tables and lights, surgical lasers, MRI consoles, Surgical Navigation Systems, patient monitoring devices, endoscope video systems and anesthesia machines.
You can also lease any type of used imaging equipment such as mammography scanners, X-ray illuminators, fluoroscopy x-ray systems, CT scanners, MRI machines, x-ray machines and even pediatric position scanners.
Whether leasing pre-owned medical equipment is right for your company will depend on the goals and future plans of your medical facility. It can be the perfect procurement strategy provided you fully understand the risks and figure out a way to mitigate them during contract negotiation. It is always a good idea to involve a financial advisor or a lawyer so that they can help you identify the risks and negotiate better terms for you.
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