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Equipment financing options

Equipment financing options

Buying medical equipment? There’s a lot to think about.

When buying equipment there are a lot of options available to you when it comes to financing your purchase. At Medfin we’ve helped thousands of healthcare professionals find the best finance solution for their individual situation by sitting down with them and really getting to know their business.

Here are a few of the questions our specialists work through with their clients to help them find the best finance solution. Our aim is to help our clients optimise the value of their equipment purchase and meet their cash flow requirements without compromising long term profit.

 

What is the true total cost of the equipment, including auxiliary expenses such as installment and delivery?

 

What is the return procedure once the equipment is in use?

 

What is the monthly loan repayment including all fees and charges?

 

Will this investment generate a return? If so, how long will it take?

 

If increasing revenue is not a major goal yet and owning the equipment will not leave you in the black, should you still proceed with the purchase?

 

We also spend the time in general talking about and working through the best ways for structuring the finance.

The Loan Options

Generally, commercial financiers offer 3 product options when it comes to financing medical equipment:

  • Lease: Medfin owns the equipment while your business uses it. At the end of the term Medfin may offer you to purchase the asset (generally for the agreed Residual value).
  • Hire purchase: Medfin as the owner of the equipment, and your payments progressively purchase the asset from Medfin while you use it.  At the end of the term, and when the final payment is made, the asset is owned by you.
  • Chattel mortgage: You own the equipment from the time of purchase, Medfin provides the finance to you for the purchase, and the asset is security for the loan.

 

As the table below demonstrates, loan types can benefit a business in different ways.

Finance option features Lease Hire
Purchase
Chattel Mortgage
Repayments are tax deductible1 Yes No No
Depreciation of the equipment is tax deductible1 No Yes Yes
Interest is tax deductible No Yes Yes
GST is payable on the cost of the equipment No Yes Yes
GST is payable on your repayments Yes No No

1If used for income producing purposes

 

We also spend the time exploring a range of other key funding considerations, including:

Aligning the lease term

Due to the rapid progression of technology, be mindful to finance your equipment over a term that matches the legitimate lifespan of your equipment. Don’t make the mistake of being forced to continue paying for equipment years after it has passed its ‘redundancy date’. For example, it is not advisable to finance a piece of equipment over a five-year term if it has only a three-year lifespan.

 

Choosing the right residual

A residual, also referred to as a balloon, is the final payment due at the end of a loan agreement. The amount is set at the beginning of the loan and is included in your agreement and repayment schedule. The residual should be realistically selected for your loan for two important reasons. Firstly, your residual should match the true value of your equipment at the end of its first finance period. The aim here is to match your residual with the second hand market value of your equipment so that you are in a better position to negotiate a satisfactory trade-in deal. Importantly, the second consideration is to ensure your residual or balloon matches your practice’s cash flow needs.

 

In the table below we look at a typical example based on the Spectral Domain OCT system (Figures used for demonstration purposes only).

Equipment costResidual amountLoanInterest rateLoan termMonthly repaymentsEstimated trade-In valueBalance due after loan repayment and trade-in
$85,000$0$85,0006.75%4 years$1,994$17,000-$17,000
(You are in front!)
$85,000$17,000$85,0006.75%4 years$1680$17,000$0 (Perfect choice)
$85,000$25,500$85,0006.75%4 years$1,522$17,000$8,500 (Shortfall. Need to make up the difference)

 

Structuring repayments to suit cash flow

Structuring a new practice or buying a practice can lead to cash flow strains. To manage this, there are a number of ways to make repayments on your loans and at Medfin we can tailor repayment options to your circumstances. For instance, if standard repayments are $2000 per month over a 5 year period, you may be able to structure $500 per month for 12 or even 24 months and catch up at the end with repayments of $2700 for 3 years. Also, annual repayments in advance are available with lease finance (12 months of payments are paid upfront). A lot of clients prefer to do it this way because of taxation benefits.

To discuss the finance options when it comes to purchasing healthcare equipment talk to us today on 1300 361 122
or request a quote or request a call-back.

 

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Important Note: Any advice in this editorial has been prepared without taking into account your objectives, financial situation and needs. Before acting on this advice, you should consider its appropriateness to you.

 

Medfin Australia Pty Ltd ABN 89 070 811 148, Australian Credit Licence 391697 (Medfin). For Personal Loans, Home and Residential investment loans for individuals, Medfin is a credit provider, as agent for National Australia Bank Limited ABN 12 004 044 937, AFSL and Australian Credit Licence Number 230686 (NAB). Medfin is a wholly owned subsidiary of NAB and part of the NAB Health specialist business.