Persistently low interest rates and uncertainty about the future business climate are steering more physicians to lease rather than buy many of the components of their practices.
Across all industries, equipment leasing and financing grew by 12% in 2015, according to the Equipment Leasing and Financing Association, though activity diminished somewhat in the early months of this year.
“If the equipment needs to be updated often, leasing often makes more sense,” says Richard Gundling, FHFMA, senior vice president for the Healthcare Financial Management Association. “It’s typically tax deductible and it frees you from big down payments.”
The downside, of course, is that leasing usually is costlier over longer periods of time, he says. In addition, the terms may not fit your needs and maintenance can sometimes be unreliable. There can be end-of-lease surprises and some physicians just may not like the lack of control over an asset.
So which way should physicians turn? Experts say practice owners should consider the terms of each buy/lease decision separately based on which is the most economical for the period of use, but also keeping in mind the long-term goals of the practice.
Ultra-low interest rates and technological advances are driving leasing and financing on nearly everything physicians would consider, from cars to software.
“Money is cheap right now and for any decent-sized practice the banks and finance companies are happy to lend to medical practices,” says Thomas Ferkovic, R. Ph., MS, managing director for Medic Management Group LLC in Akron, Ohio. Although the Federal Reserve raised interest rates at the end of 2015, they remain relatively modest.
“Banks are actively seeking out healthcare business. And if you think about the fact that at historically low rates, if you have the capacity to borrow money or lease to make improvements that will give you a competitive advantage, now’s the time,” Ferkovic says.
To determine which strategy is best, he talks with clients about the strengths of the practice and where the item to be acquired fits into the practice’s strategic plan. If there is a wide gap in total costs between buying and leasing over the period of time you are likely to need the asset, choose the most economical option, he says.