Medical Equipment Acquisition And Leasing
Keywords: leasing medical equipment, medical equipment financing, medical equipment leasing company, healthcare
There are a wide range of options that healthcare providers can utilize to acquire much-needed equipment. This article summarizes these choices and offers advantages and disadvantages to each option.
Options for equipment acquisition:
1. Cash Payments
This option assumes that there is enough cash available.
Advantages:
* It’s simple and quick.
* Everybody accepts cash
* Cash purchases minimizes paperwork and may help reduce purchase price.
Disadvantages
* It’s generally not a good use of funds because it ties up much needed capital that can be utilized in other profitable ways.
In today’s investment market, you can often obtain a yield on your money in excess of the interest charged for financing the equipment purchase. The only rationale for paying cash for the purchase is if your funds are in a low-paying account whose yield is less than the interest on a loan or lease. In that case, taking the funds from a low-yield account in order to avoid paying 9% or 10% is a sound financial decision. Of course, having significant funds in a 3% account is not wise cash management.
2. Financed Purchase
In this method of purchase, a lender provides funds for the purchase and generally obtains some form of lien or other encumbrance on the equipment until the funds have been repaid.
Advantages
* It does not deplete cash flow. Usually a 10% to 20% down payment of the total purchase price is required. In many cases, the income generated by the equipment can exceed the payments.)
* Funds not expended for a cash purchase can possibly earn a higher-income yield than the interest rate of the loan.
Disadvantages
* Interest rates may be high.
* The down payment may be high.
* The equipment is encumbered by a third party unless the funds are borrowed from a source other than a financial institution such as a pension fund.
3. Leasing
A lease offers an alternative to traditional financing. With a lease, the equipment is owned by the leasing company. The practice makes payments to the leasing company in exchange for being able to use the equipment (i.e., essentially rental payments). Leases can be closed-ended, in which case the leasing entity retains the equipment at the end of the lease term. There are also open-ended leases, where at the end of the lease term a predetermined amount is paid to the leasing entity, and the practice attains ownership of the equipment.
As a general rule, the higher the residual value (balance owed) at the end of the lease, the lower the monthly payments.
Advantages
* Generally little or no down payment is required.
* Leases are often supported by the equipment manufacturer, which can lower the interest rate or the residual payment (the amount required to attain ownership of the equipment at the end of the lease term).
* Leasing can give you the ability to obtain more purchasing power from a given amount of available cash.
* Sometimes equipment becomes obsolete in a relatively brief period of time. A closed-ended lease may allow you to use the equipment during its useful life and return it to the leasing entity at the end of the lease term. This arrangement could result in lower total expenditures than an outright purchase would have required.
Disadvantage
* In general, more interest is paid than in any other form of acquisition.
Other Leasing Considerations
1. Trade: An equipment manufacturer may have a lease program that makes it easy for the lessee to upgrade. The program can make sense for the lessee if the lessor grants significant credit for the older equipment. This can alter the calculation of the best option for acquisition.
2. Supported Leases or Financing: An equipment manufacturer may support the interest rate of a lease or financing plan. They may lower lease payments by increasing the residual value of a closed-ended lease. Again, these special offers may significantly alter the assessment of the best acquisition option.
3. Purchase Price: No matter what financing option you choose, do not ignore the purchase price. Negotiate your best price before you evaluate financing. Do not fall into the trap that automobile dealers have used for years. You should always start with the purchase price and then move to the terms (whether lease or purchase).
4. Beware of the lease that’s not a lease. The Internal Revenue Service may consider an open-ended lease with a purchase option to be a purchase contract rather than a lease. The impact of this is that the lease payments may not be deducted as expenses. instead, the equipment will be capitalized and depreciated. Have your professional financial advisor evaluate the financing contract to assess your level of risk.
5. Each Transaction Is Unique: Each piece of equipment you are considering for acquisition must be evaluated in the context of the following:
a. Purchase price
b. Projected useful life of the item
c. Your current cash position and monthly cash flow
d. Your current and projected future tax position
e. Financing incentives offered by the vendor
f. Careful evaluation of the lease or financing contract to ensure that it meets the requirements for the method you plan to use to report the equipment in your tax filings
g. Any other considerations required by your expert financial and tax advisors
Discussion
In today’s financial and tax environment, many of the factors that favored one type of financing over another have disappeared. What remain are the purchase price and financing terms, whether the transaction is called a lease or a purchase. Keep in mind that today’s market may not be as good as it was in the past. In the final analysis, you may find that purchasing is cheaper than the interest cost on a lease.
For equipment that you anticipate retaining at the end of the lease or financing term, you must evaluate several factors. The purchase price, down payment, monthly payments, and total payments are key. These factors can be impacted by incentives from the vendor, but ultimately the same evaluation needs to be done
If you are just starting out, your current cash position may dictate that you finance the equipment. Remember to get advice from a professional lease broker to help you sort out the details of the equipment lease.
Kent Harlan has been a CPA since 1984 and is the owner of Ozarks Capital Funding, a Missouri-based company offering financing in the areas of accounts receivable factoring, equipment leasing, asset based lending, and financing for healthcare providers.
ocflink.com
Previous Articles Highlighter:
Financial Security In An Unstable Economy (1)
Look beyond just employment income. Put your skills and talents to work for you. Create additional streams of income teaching or selling the hobbies you are already interested in.
The Second Mortgage Home Equity Loan (2)
A second mortgage should not be confused with a mortgage refinance or re-mortgage. When you refinance your first mortgage you are replacing your old loan with a new loan, usually at a better interest rate.
What Are The Current Tax Rules You Must Consider For Your Estate Planning? (3)
A gift over $12000 is taxable for the amount in excess of $12000 but no gift tax need be paid at once although a gift tax return does need to be filed.
Tips To Curtail Your Estate Taxes (4)
When you gift these units, you can bring down the value of annual gifts within the exclusion limits by applying these discounts. For example, when you gift two units to a child, the child would come to have a minority interest in the company.
How Can Gifts Help You Reduce Your Estate Taxes? (5)
2009 will see this limit climbing to $3.5 million. The rate of taxation for the amount above the exemption limit is a flat 45%. Every dollar above the limit will lose 45 cents to estate taxes.
A Tax Guide To Manage Your Estate Taxes Effectively (6)
Or you can bequest them up to $2million taking advantage of the estate tax exemption limit. You are also individually entitled to give away any amount during your lifetime to pay for tuition or for medical expenses not covered by insurance.
Taxes You Must Consider Before Passing On Your Properties To Your Heirs (7)
You can avoid much of this estate tax by forming a trust. The proceeds of your life insurance policy are also subject to very heavy taxes. You can avoid the taxes by forming a life insurance trust.
Monaco Real Estate Prices To Overtake London Again? (8)
In recent years the UK market has accounted for much of Monaco's property price rises, as the number of buyers has increased to 40 per cent of the total market, but in recent months buyers from other European countries and from further afield, Australia and Canada in particular have been noticeable.
Tax Haven Property 2007 Gets An Icy Chill (9)
Recent improvements in the road from Barcelona to Andorra though have cut the travelling time by some thirty minutes to two hours fifteen minutes. 'Given the tax advantages Andorra has', note the travel guide, 'A two and a quarter hour trip to the nearest international airport could be viewed as a small price to pay for those who will be saving substantial amounts of money in tax.
Andorra Property Prices Hit 2007 Ice (10)
The nearest airports are Barcelona and Toulouse. Recent improvements in the road from Barcelona to Andorra though have cut the travelling time by some thirty minutes to two hours fifteen minutes.
Andorra Tax Haven Introduces Capital Gains Tax (11)
With property prices a quarter of rival tax haven Monaco, demand has increased from international buyers. But any hope of the new capital gains tax dampening property prices is unlikely to work, according to Andorra property companies.
Asset Based Lending As A Financial Tool (12)
Capital Expenditures Capital expenditure is the money spent to acquire and/or upgrade physical assets such as buildings and machinery. Capital expenditure is also commonly referred to as capital spending or capital expense.
What Are The Benefits In Obtaining Debt Consolidation Services? (13)
Perhaps it would mean fewer trips to the shopping malls especially if you have the tendency to buy on impulse. Don't use your credit card unless it's really, really necessary.
Forex Broker - Choosing The Right Forex Broker (14)
These free accounts are just practice accounts and don't deal in actual real money. They are a good way to get to know what it's like to trade on the forex market and it's recommended that you try one of these accounts before you move onto the real thing.
The Foreign Exchange Market (FOREX) Uncovered (15)
Forex trading has been around for a long time but is still misunderstood by a lot of people. Those that do know what Forex trading is have come to love the excitement that trading can bring.
Run The Numbers Before Buying An Investment Property (16)
This includes all the utilities and lawn maintenance. In addition, there may be owner expenses like parking lot lights and trash bin service. PROPERTY MANAGEMENT COSTS If you are going to hire a property management company, definitely get their rates.
How School Loan Consolidation Can Save You Money (17)
If you go the federal loan route, then you can look into Stafford loans, Perkins loans, or other federal consolidation programs offered by some of the larger national lenders. You should always shop around before making a final decision on a lender so you will be sure to get the best possible loan at the lowest rate.
Saving Money Through Student Loan Consolidation (18)
For those already working, it would be an easier choice to make. It is important to go over all your options when choosing a lender for student loans. Even if you have to start making a student loan payment immediately, you will still save yourself more money in the end because of the lower interest rate.
Discover Newly Launched Hedge Funds And Those Who Gained On Exit (19)
The Amanda Capital Group is a private equity investment company. Its parent company (Amanda Capital PLC) is the first publicly listed private equity hedge fund of funds in Scandinavia.
Selling Your Own Home (20)
When your closets are cleaned up they will look much larger to the potential home buyer! Abundant closet/storage space is a major selling point for most people. Apply this rule to any storage area.
Newer Articles Highlighter:
The Many Faces Of Student Loans (1)
Private loans also require a student to submit their credit history, and the interest and fees paid on the student loans are based upon the student's credit score. Parents may be required to co-sign for a private student loan, making them responsible if the student has to defer payments at any time.
Are Balance Transfer Credit Cards On The Way Out? (2)
Granted, those offers have changed. The current crop include conditions that guarantee the issuing bank some benefit for taking on a transferred balance from another company. The earliest types of balance transfer cards generally offered 0% interest for a set period of time - usually between six months and one year.
A Simple Way To Cut Your Monthly Expenses (3)
Ask yourself if you really need the websites. Financing. If you think about why companies offer financing on their products, it's not just because it offers you a convenient way to pay.
Why Is Estate Tax Planning So Important? (4)
It expressly states your wish in this regard and acts as a bar for anyone to speak on your behalf. .. Prepare a health care power of attorney:- This document is to authorize a specific person to decide upon your healthcare measures when you fall in an unconscious or vegetative state or are unable to take your own health care decisions on account of any other reason(s).
Using An 80 20 Mortgage To Avoid Mortgage Insurance (5)
Most fixed second mortgages are a 30 due in 15 which means that the second mortgage is amortized over 30 years, but is due in 15 years. The benefit of going with the line of credit as the second mortgage is that the interest rate is normally much lower than the fixed second mortgages rate.
Parents Face 'Mounting Costs On Nurseries' (6)
A representative from the charity claimed that debt-ridden households often have little understanding of financial products and as a result often do not realise when they are being charged an "extraordinarily high amount" in loan interest rates.
Garbage In, Garbage Out (7)
On the internet, sometimes, it is hard to differentiate real information from junk. An official looking website, someone who claims to be an authority, and suddenly, the opinion has become a fact.
Should You Buy A Foreclosure Home ? (8)
Both types of purchases have their advantages, but they take a little more work than a conventional purchase. Buying a house at auction or through a mortgage company is probably the easiest way to buy a foreclosure home.
How To Manage Your Debt Consolidation Solution (9)
It's not entirely nothing, since you are enjoying the things you bought early. You would have had to save to obtain them outright. But is that worth the 5% of your remuneration?
Buying Insurance For Your House (10)
You can use the power of the internet to research a variety of house insurance policy companies and obtain free quotes. Get at least 4 free quotes to compare and be sure to compare pricing and coverage with your current homeowner's policy to see if you can save some money for the same amount of coverage.
How To Find A Forex Broker That Won`t Rob You Blind (11)
But, if you want to trade in the market you need a good firm to work with. While it might be tempting to simply ask the brokers what they can do for you, you can`t always depend on them to give you a straight answer.
Options: How A Million Dollar Options Trader Sets His Stops: Underhanded Tips And Tricks (12)
Since no two trades are the same, different factors will dominate on different trades. Think about all of them on every trade. If you don`t, you`ll miss something important.
24 Hour Profits By Picking The Perfect Investment Club Broker - Hidden Tricks Only The Experts Know (13)
No one member of the club is going to be able to provide the constant watch on the markets that is necessary to provide up-to-date information on the stocks that your club may be considering.
The Benefits Of Having A Business Credit Card (14)
You will want to know that for a small business, your personal credit and your business credit can become intertwined. If your business has no credit history, all the company can do is look at your personal credit history to decide if your business is deserving of credit.
Stocks: Hidden Blueprint For Profiting In Stock Trades - Entering, Holding And Exiting - Part 2 (15)
Buying a gap down is an excellent way to enter a position, since when a stock gaps down, it often opens near what will turn out to be the low of the day.
The Secret Formula To Picking A Million Dollar Forex Trading Strategies (16)
There are two basic approaches to analysing market movements, in both equity markets and the forex market. These are technical analysis and fundamental analysis. However, technical analysis is much more likely to be used by traders.
Tips And Tricks To Set Up Your Second Stock Trader Club Meeting - Part 2 (17)
The vice president often plans the educational section of stock trader club meetings. Treasurer. The treasurer is also known as the financial partner. The treasurer deals with the brokerage firm and does the buying and selling of stock.
Unbreakable Forex Trading Rules Guaranteed To Increase Profits (18)
You need guidelines that have an action plan in case your trading computer, internet connection, broker, power, telephone etc. break down, or fails to be of any real use.
Forex Investing At The Right Time And The 10 AM Rule And How It Works (19)
Of course, you will use stops to protect yourself, like you would on any trade. Anyone who`s followed the market knows that a forex stock will often gap up early in the morning, only to suddenly sell off and reverse into negative territory.
Commodities: Discover The Amazing Award Winning, Secret To Support And Resistance Lines (20)
Think of it as a potential floor in the commodity`s prices. The reason it`s so important to set stops below support is that positions moving downward tend to bounce upward around their support levels.