There’s certain situations in life where, looking back, you wish you knew more than you did before taking action.
Entering into a medical equipment lease is one of those life situations. It is a good idea to be well equipped with information before signing on the dotted line.
What is one thing companies should know about medical equipment leases?
We asked experts and people who have “been there and done that” for their insights. Here are eight things to know about medical equipment leases.
- Involvement of MD (Medical Doctor)
- Know That Your Capital Can Be Reinvested
- Basic Lease Conditions
- Long Term Contracts
- Risk of Loss Clause
- Required Collateral
- Down Payment Alternatives
- Purchase Options
Involvement of MD
When we are asked to finance a piece of medical equipment, the lender always asks if a medical doctor (MD) is involved in the operation of the medical equipment. The MD does not have to be an owner of the business, but it’s helpful when the MD is involved in the operation of the business.
Carey Wilbur, Charter Capital
Know That Your Capital Can Be Reinvested
The one thing that companies should know when it comes to equipment leases is that your capital can be reinvested. Lower initial costs associated with leasing means more capital. Instead of an outright purchase that leaves you with negative returns in the short term, leasing medical equipment allows you to avoid a down payment, thus conserving capital that can be reinvested back into your business!
Chris Dunkin, Portable Air
Basic Lease Definitions
Understanding the definitions of terms in medical equipment leases is a necessary starting point when considering leasing equipment. Educating yourself about terms like a “fair market value lease” or a “project financing lease” will help you understand the basic terms of the lease, and may inspire you to ask better questions throughout the process.
Megan Chiamos, 365 Cannabis
Be Aware of the Long Term Costs
In general, there are a lot of similarities with leasing a car. For example, the lease allows you to procure and use up-to-date and maintained equipment, without the initial substantial outlay in cost. However, you also need to be aware of the long term costs of financing your equipment this way, which can substantially exceed the cost of owning in five to ten years.
Michael Alexis, Teambuilding
Risk of Loss Clause
Many leases contain a risk of loss clause that holds the lessee responsible for all risks of damage or loss to the equipment – even those not covered by insurance. For example, if a non-covered natural disaster or event (such as a riot) damages the equipment, the lessee must replace it. Likewise, if a third-party contractor damages the equipment, the lessee must replace it even though it can be years before the contractor’s legal liability is resolved. With many medical equipment devices costing in the millions, this can be financially detrimental to a lessee. Unfortunately, too many businesses mistakenly assume that insurance will cover all losses. This is not true and lessees must carefully consider and negotiate this clause.
Christine Kuntz, Concerto Law
Collateral Isn’t Required
Companies thinking about medical equipment leases should know that collateral isn’t required. Borrowers don’t need a personal guarantee. Instead, the equipment they plan to lease can be used as the collateral. This is important to note because some physicians want to avoid having to put up personal assets as a security. Understanding medical equipment can be leased without risking repossession of personal property can help private practice owners make financing decisions they’re comfortable with.
Nishank Khanna, Clarify Capital
The Down Payment is Lower Than you Think
Concerns over the capital needed to finance equipment that you’ll eventually own is something we hear a lot, leading folks to go the leasing route. The problem is with leasing, you miss out the fact that owned medical equipment counts as a taxable income generator, meaning you may now be eligible for tax deductions, write-offs, and other incentives. This is only possible via financing for equipment ownership though, not leasing or purchasing in full, which few can afford anyway.
Furthermore, you’re building your business’ equity with every payment made. That’s also impossible with perpetual leasing but carries with it all sorts of long-term benefits. So while you court higher up-front costs with leasing, you’re likely making a smarter long-term investment.
Jim Pendergast, altLINE
The end of a lease typically presents an opportunity to purchase the equipment. The more specific you are up front about the purchase options, the less surprises you’ll have at the conclusion of a medical equipment lease. Make sure you have the option to purchase, renew, extend, or return the equipment at the conclusion of the lease.
Brett Farmiloe, Markitors