Leasing office equipment offers advantages over purchasing

May 25, 2011

The equipment used by primary care physicians grows more advanced by the day, but its rapid evolution also means you must think carefully about the risks involved in purchasing equipment.

Key Points

Buying ineffective or soon-to-be obsolete equipment is a waste of precious time and money that leaves you with little more than buyer's remorse. In financing the purchase through a bank, medical practices typically are forced to pay fees on their lines of credit or to make down payments of 20% to 30% of the loan.

Banks' general lack of flexibility in the terms they offer tends to give you a less-than-optimal degree of latitude. In borrowing too much from banks, you may find that your future borrowing options have been curtailed. Meanwhile, the bank has forced you to accept multiple liens on nearly all of your assets.

Leasing, by contrast, offers many advantages, provided you understand fully both its potential benefits and risks-and leverage that understanding during an informed and productive negotiation.

Organizations that might have trouble obtaining a bank loan typically are able to lease equipment with relative ease. That's because leasing companies have considerable security in the equipment itself. They also evaluate prospective deals based on the cash flow of lessees' businesses. Knowing that physicians tend to have steady cash flows, leasing companies offer robust menus of financing options for medical equipment.

This flexibility can help doctors in several ways. For example, a true lease does not, typically, appear as a long-term obligation on the practice's balance sheet. From an accounting standpoint, lease payments show up only as current operating expenses, allowing the lessee to show less debt on the books. In addition, because they keep title to the equipment, lessors benefit from the depreciation and tax benefits associated with owning that equipment. In order to be competitive, they pass those savings on to their customers by charging a lower rate.