Navigating the Available Options for Financing Technology

January 11, 2016
Ed Rabinowitz

When practices need new medical equipment, they face not only the choice of which product to buy, but also the question of how to pay for it. Here's a step-by-step guide to making purchases that make financial sense.

It can often be problematic to paint with a broad brush. Consider that every medical practice is different, just as every patient has his or her unique characteristics.

 

So, why should it be any different when determining how to finance technology? Is there a right way and a wrong way? Lease or purchase? It’s not that simple.

 

“I think each purchase of technology needs to be looked at on its own, and stand on its own merit,” explains Stephen Sheinbaum, founder of alternative finance company Bizfi. “There are a variety of factors that need to be taken into consideration.”

 

Information Needed

 

Sheinbaum says there are two critical elements to consider when looking to finance technology. When considering the lease versus purchase options, he explains that purchasing requires more capital upfront, which enables you to finance the acquisition over a much shorter period of time. Conversely, a lease requires very little upfront and allows for payout over a longer period of time.

 

“Sometimes owning something is good, because you build up equity value and then you can sell it,” Sheinbaum says. “With leasing, although it helps your cash flow, the downside is you’re not building any equity in the product. You’re renting the equipment.”

 

The second important consideration is whether the technology in question will become obsolete in a relatively short period of time. If that’s the case, and you’re concerned about making a long-term commitment on something that likely will become antiquated relatively soon, then leasing might be the better way to go.

 

“Then, as new technology comes along, you can just return the equipment at the end of the lease in exchange for the latest and greatest at that point in time,” Sheinbaum says.

 

However, there’s other technology—x-ray equipment comes to mind, Sheinbaum says—that usually lasts a long time because there aren’t too many groundbreaking changes short-term.

 

“Sometimes, under those circumstances, it makes sense to try to find a way to own the equipment as opposed to leasing it.”

 

Other Options

 

Sheinbaum says that where leasing is concerned there are a variety of options to consider. For example, you can lease the equipment for a short period of time, and therefore keep your payments lower. Then, at the end of the lease, you can purchase the equipment for the remaining fair market value.

 

“That’s more of an operating lease,” Sheinbaum says. “You’re just leasing a piece of equipment to operate.”

 

A capital lease, on the other hand, involves higher monthly payments, but at the end of the lease you get to purchase the equipment for one dollar.

 

“Alternatively, you can go to the bank and obtain financing, buy the equipment, and then sell it,” Sheinbaum says. “You have to look at the various tax ramifications and the costs associated with each methodology.”

 

Additionally, while purchasing equipment may make economic sense in the long run, in the short term it can impact a practice’s bottom line because it will cost more on a current cash pay basis to own something versus leasing.

 

And then there’s automation. Often, new equipment or technology will cost more at introduction than it will in subsequent months or years. If you lease equipment and the price drops, there isn’t as great a penalty.

 

“But if you buy an item and it’s going to devalue or depreciate over time anyway, and then if technology is moving at a pace that a new product would cost less than the old one, there’s almost deflation with respect to that product,” Sheinbaum says. “In that case, owning becomes much more troublesome and onerous to someone’s business.”

 

First Steps

 

Start by identifying the piece of equipment or technology that you want to acquire, and don’t feel that you have to go that road alone. Sheinbaum says there are plenty of third-party technology consultants who can provide assistance in that area.

 

Next, talk to your accountant, and review the leasing versus purchasing options that are available.

 

“I believe in keeping life fairly compartmentalized,” Sheinbaum says. “People can become a jack-of-all-trades and experts of none. I’d rather talk to a bunch of experts.”

 

Bizfi, he says, can help. The company recently launched its Bizfi.com platform from which physicians can receive real time automated and integrated offers from a variety of companies up and down the credit spectrum, including SBA lenders, traditional banks, and equipment finance companies.

 

“We’re actually one of the funding companies on our own platform, but we believe in being transparent and extremely agnostic,” Sheinbaum says. “We act as Progressive Insurance does, and we show our offer side by side with that of our peers. Physicians should walk away from the exercise with a bunch of options.”