NEW YORK, June 15, 2011 /PRNewswire/ -- Advances in medical technology offer many advantages to today's physicians, but equipment is evolving so rapidly that practitioners need to think twice before purchasing it outright. Leasing presents an attractive alternative, but only to those who fully understand both its potential benefits and risks and then leverage that understanding during an informed and productive negotiation, writes Raymond W. Dusch, a partner in the New York City office of LeClairRyan, in an article in the May 25, 2011 edition of Medical Economics, titled, "Leasing Office Equipment Offers Advantages Over Purchasing (Beware of the Fine Print)."
Premature obsolescence is one of the obvious risks of purchasing expensive medical equipment outright, but there can be an immediate financial downside as well. "In financing the purchase through a bank, medical practices typically are forced to pay fees on their lines of credit or to make down payments of 20% to 30% of the loan," Dusch writes in the article. The lack of flexibility in loan terms common among banks lately and widespread use of multiple liens may also curtail a practice's future borrowing options.
In contrast, organizations that might have trouble qualifying for a bank loan often are able to lease equipment with relative ease. One reason is because leasing companies have considerable security n the equipment itself, Dusch points out. "They (leasing companies) also evaluate prospective deals based on the cash flow of lessees' businesses. Knowing that physicians tend to have steady cash flows, leasing companies offer robust menus of financing options for medical equipment," he writes.
Along with easier access to the latest equipment, Dusch notes that leasing offers other advantages to medical practices, including:
- Lease payments are carried on the books as current operating expenses, allowing lessees to show less debt.
- Because lessors retain title to the equipment, they generally pass the cost savings associated with depreciation and tax benefits along to their customers.
- Leasing companies often allow physicians to roll over such "soft costs" as training, service contracts and consumables associated with the leases they sign, keeping these often substantial expenses off their balance sheets.
- Leasing puts 100% financing within easy reach; even if a security deposit is required, it is usually equal to about one month's rental, far less than the hefty down payments typically required for bank loans.
"Doing a good lease deal is all about conducting a smart negotiation, and in negotiations that saying 'know thy opponent' is as apropos as ever," Dusch advises in the article. "Thus, it helps to know how finance companies are structured." For many physicians, the best option is doing a deal with an equipment manufacturer that offers its own lease financing or with a smaller vendor associated with a large finance company such as General Electric, he adds. While many community banks and independent leasing companies are also in the marketplace, dealing with a larger entity offers physicians the convenience of one-stop shopping. And because larger vendors understand that favorable financing is the key to selling equipment, they tend to be more competitive.
However, leasing is not a risk-free undertaking, Dusch stresses, noting that, "as in any deal, failure to read the fine print can trigger regret later." The article suggests that potential lessees pay particular attention to items such as late fees, automatic payment provisions and automatic renewals. Insurance is also an important consideration, as leased equipment may not be covered under a physician's blanket policy without a special rider.
If signing what is known as a net lease (where the lessee assumes responsibility for virtually everything related to the equipment, from personal property taxes to cost of replacement if the equipment is lost or damaged), risk assessment is especially important. "These 'hell or high water' provisions are the same as those used in car loans," Dusch writes. "It is expensive to get out of these leases before their expiration dates. You need to know your vendor and truly understand how to select the best equipment."
To view the article in its entirety, go to http://www.modernmedicine.com/modernmedicine/Modern+Medicine+Now/Leasing-office-equipment-offers-advantages-over-pu/ArticleStandard/Article/detail/723786.
Founded in 1988, LeClairRyan provides business counsel and client representation in corporate law and high-stakes litigation. With offices in California, Connecticut, Massachusetts, Michigan, New Jersey, New York, Pennsylvania, Virginia and Washington, D.C., the firm has approximately 335 attorneys representing a wide variety of clients throughout the nation. For more information about LeClairRyan, visit www.leclairryan.com.