Medical equipment finance
Upgrade your equipment and provide better care with medical equipment finance
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If you're looking to upgrade or replace your medical equipment, you'll need finance. Find out how to get approved for a medical equipment loan.
Is your medical practice ready for a new fit out? Are you using outdated medical equipment that desperately needs an upgrade? Perhaps you're ready to move to the next level and invest in the latest diagnostic or imaging technology. Whatever the reason, most medical practices will need to purchase new medical equipment from time to time. And since diagnostic, healthcare, scientific and other forms of medical equipment can be exceedingly expensive, most medical practices will look towards financing all or part of their new equipment expenditure.
When purchasing expensive medical equipment, the equipment provider may offer to help you finance the equipment. However, finance terms offered by the equipment provider may not be the best option to suit your circumstances. As with any type of business finance, it pays to shop around and compare your options before making a decision. Read on to find out about different types of medical equipment finance and how to maximise your chances of being approved.
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Understanding your medical equipment finance options
If your medical practice has sufficient savings, it may be possible to purchase your medical equipment outright. An outright purchase offers obvious cost savings, including all fees and interest that would have been charged during the life of the loan. Additionally, medical equipment suppliers may offer a discount on the total purchase price for a cash purchase.
Your decision will also depend on the amount of cash savings held by the medical practice compared with the total cost of the equipment. Depleting your entire cash savings could leave your practice cash poor, lacking sufficient funds to navigate periods of negative cash flow and without the means to finance business growth and time-sensitive opportunities.
When purchasing equipment outright, you can claim depreciation of the equipment as a tax deduction, provided you use the equipment to generate assessable income.
The decision whether to purchase medical equipment outright will depend on your financial circumstances and you should weigh the advantages and disadvantages of other types of equipment finance.
Medical equipment loan
- Security. Unlike other types of business loans, a medical equipment loan can usually be secured against the value of the medical equipment itself. This means that you won't need to offer any other property or assets as security for the loan.
- Loan amount. Since the business loan is essentially unsecured, the amount of the loan will be based on the value of the equipment itself, without requiring any separate valuations of other assets. Keep in mind that different lenders have their own ways of valuing medical equipment, and the value of the equipment may not directly correspond to the agreed purchase price. The lender will consider the cost and type of equipment, along with its age, intended use and projected useful life.
- Deposit. The medical industry is considered a strong one and is preferred by many lenders. Unless the practice has a poor credit history or is seeking to purchase second-hand equipment, lenders will often lend up to 100% of the value of the equipment.
- Interest. Many medical equipment loans will be based on a fixed interest rate. Business loans are largely unregulated, and most lenders do not publish their interest rates online. Rates offered will depend on a number of factors and can vary significantly from lender to lender. In general, lenders will look at the financial circumstances of the medical practice, the proposed amount and term of the loan, and the financial circumstances of the business owner. Some lenders will also consider arbitrary factors that other lenders may not take into account. For example, some lenders will apply a higher interest rate to second-hand equipment than new equipment.
- Loan term. Loan terms can vary significantly between lenders and will usually be linked to the projected life of the equipment itself. For this reason, unlike other business loans for medical professionals, medical equipment loan terms are unlikely to be longer than 10 years. Ensure that the loan term does not exceed the useful life of the equipment and that the equipment is not fully depreciated in your financial records before the loan is repaid.
- Tax. You can claim the GST included in the purchase price as a tax credit. Additionally, the interest component on the ongoing loan repayments is a tax deduction, along with the depreciation amount of the equipment, provided you use the equipment to generate assessable income.
Finance lease and commercial hire purchase
In a finance lease or commercial hire purchase arrangement, a lender will purchase the medical equipment outright and then lease it to your business for an agreed period of time.
At the end of the agreed lease period under a finance lease arrangement, the equipment is either surrendered to the lender or can be purchased with a final balloon payment. Under a commercial hire purchase, the equipment belongs solely to the business once the final payment under the agreement has been made.
While both arrangements can appear similar, the tax implications can be vastly different. If considering a finance lease or commercial hire purchase arrangement, consult with your accountant to discuss the tax and depreciation ramifications specific to your business.
In general, ongoing repayments are tax-deductible in a finance lease arrangement, but not with a commercial hire purchase. Conversely, a commercial hire purchase arrangement will involve tax-deductible depreciation and interest.
When it comes to GST, ongoing payments pursuant to a finance lease arrangement will attract GST (which can then be claimed as a tax credit on your next Business Activity Statement), whereas a commercial hire purchase arrangement will involve a lump sum GST payment on the total cost of the equipment.
Applying for medical equipment finance
How lenders assess applications for a medical equipment loan
When assessing an application for a medical equipment loan, lease arrangement or commercial hire purchase, lenders will consider the following:
- The value and proposed use of the equipment, along with its projected useful life
- Your financial circumstances and your ability to meet the ongoing repayments
- Whether the equipment will significantly increase the earning potential of the business.
Comparing your options
Ask yourself the following questions when considering how to finance the purchase of medical equipment.
- How do interest rates compare between lenders and between different finance options?
- What fees apply for each loan type, including early exit fees and other hidden fees?
- How flexible are the finance arrangements? Do I have the option to pay out the loan early or buy the equipment outright without incurring additional penalties?
- What are the taxation implications of each finance type to my business? With businesses structured in different ways, ideal tax arrangements for one business may not be as advantageous for another.
- What loan terms are on offer, and how do these compare with the expected useful life of the equipment?
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