Equipment financing for a modern practice

December 7, 2018

Rather than expending all your capital up front to buy the equipment, financing allows you to spread payments over time and free up capital for other business expenses.

Technology in the healthcare industry is constantly evolving, and with these changes comes a higher standard for quality of care. In today’s environment, to deliver the best patient outcomes, your practice needs to stay competitive and keep ahead of new developments. However, for many physicians, the financial strain of a new equipment purchase may stand in the way. 

Financing can help relieve the stress by making payments more manageable and within your budget. Rather than expending all your capital up front to buy the equipment, financing allows you to spread payments over time and free up capital for other business expenses. Many physicians find the added flexibility makes financing a valuable alternative.  Depending on the lender, financing can include the full equipment purchase price and add-ons like maintenance and consumables, which can offset the slightly higher overall cost of a cash purchase. Your equipment supplier may be able to recommend a lender for your needs or, while doing your research, consider looking for a lender that offers financing structures that meet your needs. 

Financing structures

As with any major purchase, it’s critical to determine whether the benefits will be worth the investment. Fortunately, a practice can often times find a lender that offers flexible financing terms for an initial period, with no or reduced payments before making full payments. This gives the practice sufficient time to learn how to use the equipment and have it generate income prior to taking on the bulk of the expense. 

Though these arrangements may be structured differently depending on the practice’s objective regarding ownership or use, there are a number of options available to help your practice acquire new technology.

Deferred payment structure. This option requires no payment for the first three to six months, followed by standard payments for the remaining term. 

“Token-payment” program. This plan allows a practice to pay a nominal monthly payment for a short period (around 6 to 12 months) before standard payments begin. 

“Step-up” structure. This plan generally includes a deferral period, followed by minimum payments for up to a year (often 1 percent of the equipment cost), before standard payments begin. 

Useful life of the equipment

Today, medical equipment financing terms tend to last between 3 to 7 years, and innovations in technology may cause obsolescence before the end of the payment term. Since it’s not always possible to match your financing term with the useful life of the equipment, make sure to discuss the risk with your lender beforehand. Both finance agreements and leases can include buyout and upgrade clauses that can hedge against obsolescence and afford additional flexibility down the line.

What to do if you’re locked into a contract

Alternatively, if you’re interested in new equipment but have an existing contract, there may be options available. It might be possible to trade-in the old equipment and carry over the remaining balance into a new contract and extend the term to maintain, or even lower your prior payment, and potentially receive a more attractive interest rate. Often a new lender can buy you out of an existing contract; however, it’s generally more efficient to establish a long-term relationship with a lender to seamlessly negotiate upgrades.

Above all, it’s critical to seek out a financing program that meets your practice’s needs over the long-term. In addition to speaking with your supplier, you may want to consult a financial advisor, tax attorney, accountant, or other trusted professional to help you make the best choice for your practice. 

Justin Tabone is the originations leader for healthcare vendor equipment finance at TIAA Bank in Parsippany, New Jersey.

TIAA Bank® is a division of TIAA, FSB. Financing is provided by TIAA Commercial Finance, Inc., which is a subsidiary of TIAA, FSB, and not itself a bank or a member FDIC.

 

 

 

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