Billions of dollars are spent each year on the acquisition of medical
equipment, from laboratory to diagnostics, from treatment to personal care. The
vast majority of those acquisitions are financed or leased, and not just out of
necessity.
In
reviewing the “why lease” question, it is important to compare leasing to the
available alternatives, such as cash, bank loans, or the various forms of
vendor financing. Below please find discussion points to be considered when any
major capital purchase is made:
Obsolescence... If the technology of
the equipment advances, and you expect to upgrade (i.e. return) the equipment in
3 or 5 years, you may be better off by leasing the equipment and returning it
when the term expires. Pay for the use of the equipment, not the ownership.
Cash has a price…Assuming competitive lease rates are
available, would you not be better off investing that cash on capital
improvements or new programs or services which can provide a higher return than
the cost of the lease?
Cash flow… Leasing allows you to
match the revenue generated by the asset with the cost of the monthly lease
payment. It also typically allows for 100% of the equipment cost to be
financed, and in many cases will include any shipping and/or installation
charges. This bundling allows for minimal cash outlays at the time of
acquisition.
Asset management… owning the
equipment means knowing how to best dispose of the equipment when no longer of
use. While the equipment may have value, your expertise as an organization is
the treatment and curing of patients, not scouring the global market place for
the best price of used medical equipment. Why not take advantage of the
lessor’s expertise, which, in part, creates the low monthly lease payment.
Off Balance Sheet… Certain leasing
structures, specifically FASB 13 operating lease structures, may allow you to
acquire the equipment without adding to the amortization or depreciation
expense of your balance sheet, and the cost of the lease payment can be
expensed out of operations.
Same as cash… Again, do you really want to own the
equipment at the end of the term? All of the aforementioned issues of equipment
disposition, technological advancement and asset management still apply.
Conserve bank lines… If ownership is
really desired, why not finance the equipment with a leasing company, and
conserve your bank lines for your short term cash and cash flow needs, or your
long term expansion or improvement needs.
Get
a cap… if technology is at issue, why not get a cap on your end-of-lease
purchase option? That way you will know upfront what your total “all-in” cost
of financing is should you purchase the equipment at lease end. In many cases
this compares very favorably to the bank loan, and should you decide to return
the equipment, you will have saved hundreds or thousands of dollars compared to
the “finance to ownership” plan.
Leasing
(3rd Party) vs. Vendor Financing:
Most equipment vendors, when
providing an equipment proposal, include lease rates, or at minimum a leasing
source as part of their proposal. A prudent business practice as cash
availability is always in question. However, is it truly a better deal, a
better rate, or a more convenient alternative as touted? Before you sign up with their leasing
company, ask yourself a few questions…
Is it more flexible? … Customers may
think (or be told) that if they lease with the vendor’s company they will have
more flexibility to upgrade or get out of the lease. The reality is that very
few equipment companies have their own leasing companies. They are most likely
partnering with a 3rd party leasing company that will have the same
restrictions on cancellation or upgrades as any other leasing company.
Is the leasing company impartial? …
Many vendor lessors, be it in-house or third party, will provide preferential
treatment to their equipment partners when the lease is over and the time to
upgrade has come. Their flexibility and impartiality end if you decide to
change vendors at lease, or heaven forbid, prior to lease expiration. Additionally,
the vendor lessor’s contract may require a predefined lease acceptance,
regardless of when the equipment becomes available for use!
Is it more competitive? … preying on
the convenience of being the preferred lease vendor, the lease rate/payment you
see may not be competitive in the marketplace as you think. Granted, $10-20 a
month may not be that significant of a difference, but $100-200 a month would
be!
Getting a
quote from an independent third party lessor will do one of three things, a)
validate your decision to go with vendor financing, b) give you “ammo” to get a
more competitive rate from the vendor finance company, or c) give you a better
rate from an independent.
Is it more convenient? … As mentioned above, most equipment vendors partner with a third party lessor to provide financing for their products, and thus the credit application, documentation, and lease process are the same as if you were with any reputable lessor.
Lease
vs. Reagent Rental/Cost Per Test
It costs more… It is well known in
the industry that the financing component of a reagent rental program is higher
than a straight lease would be. It’s higher because the leasing company has
more work to do with respect to invoicing, reviewing usages for shortages,
overages, etc, and because they do not receive the same guaranteed even payment
stream of a lease.
It is also higher because it is easy
to bury a high rate into the transaction, as the capital portion of a lease is
usually less than 1/3 of the total
It costs more again… If your usage goes up, so does your
monthly bill. Most RR’s are written with minimum monthly commitments,
but no caps on overages. For example, if your agreement calls for 1,000
tests/month, but you only run 900; you still pay for 1,000. However, if you run
1,100 tests/month, you will most likely be billed for all 1,100 tests at the
same rate, with no reduction for the capital dollars included in that
It still costs more… On a
Is it operating?… many view a reagent rental contract as an operating lease because the capital costs are buried in the cost of the reagents or supplies, however, as many rental contracts are non-cancelable agreements, upon further review they would be considered a capital obligation of the institution.
Get a lease quote… much like vendor financing above, there is no harm in getting a straight lease quote and matching it up with a “reagent only” reagent contract to compare the total cash outlay with that of the reagent rental program. With a straight lease, the equipment cost is fixed, and reagent costs go up and down with testing volumes.