Medical Financing

Healthcare decision makers face continual challenges when it comes to allocating scant recourses. Patients demand the best that medical equipment technology has to offer. But the equipment is expensive. Capital budgets typically fall way short of requests for medical technology. It is therefore critical that all aspects of the equipment purchases and financing be carefully considered before a decision is made.

Equipment to purchase:

Deciding what type of equipment to acquire can be a daunting task in and of itself. Let’s say you are considering the purchase of a CT scanner. The current and most widely-used model costs around $1 million new. You’ve also been approached by a supplier that sells refurnished equipment. His company will sell you a refurbished 16-slice machine for $400,000. You’ve also discovered that a new scanner is being rolled out in six months. Although this machine will be able to detect cancer and other diseases it its early stages, the cost is $1.5 million. What do you do? Will you be able to charge more per scan with the newest technology so that revenues match expenditures? Will you be able to “get by” with the 16-slice for a period of time? These are questions that are at the root of the decision.

Once the decision has been made as to the type of medical equipment to be acquired, the next challenge is to decide what will be the optimal way of financing it. There are many options available, but the most common are borrowing the funds from a lender or leasing the equipment.

Medical Equipment Leasing:

Leases usually run from three to six years and have lower monthly payments than buying the equipment outright and financing it through a lender. That’s because the lessee is paying for the use of the equipment during the term rather than owning it. In addition, leasing offers 100% financing, as there is no down payment required other than the first payment and a security deposit equal to a payment. Since the payments are lower, providers are able to improve their cash flow and are more likely to match revenues with expenses. From a tax standpoint, leasing also offers the advantage of writing off 100% of the lease payments.

Many medical professionals also opt for leasing because of its flexibility. A lease can be negotiated in such a way as to include maintenance, upgrades, and other services. At the end of the lease term, the provider has the option to purchase, renew, or simply return the equipment. This is an important advantage, as it guards against equipment obsolescence. At the inception of the lease, you should consider negotiating a fair market value cap or placing an early buyout option in the contract. These details are rarely in a standard lease, so you must ask the lessor for these items.

Since the payments are lower, providers are able to improve their cash flow and are more likely to match revenues with expenses. From a tax standpoint, leasing also offers the advantage of writing off 100% of the lease payments.

Medical Equipment Loans:

When equipment obsolescence or cash flow isn’t an issue (which is rare in the medical industry), an equipment loan might be a better alternative. At the end of the lease term, the provider has an asset that he can either continue using or dispose of it on the open market. Borrowers also receive tax benefits, such as the depreciation expense on the equipment and the interest expense incurred during the loan payout.

Using a multiple of EBITDA (earnings before interest, taxes, depreciation, and amortization) is a common method of valuing healthcare practices and hospitals. If a healthcare group is considering going public or selling the business, financing equipment through a lender may be advantageous because it would result in a higher valuation than if they had leased the equipment. Leasing would be an “above the line” expense.

Personal Guarantees:

With both medical equipment leases and loans, personal guarantees from the owners are usually required. This provides a comfort level for the lessor or lender. If there is a default, the lender/lessor can attach personal assets of the lessee for the balance of the loan or lease that isn’t satisfied by the liquidation of equipment. Most providers do not want to sign a personal guarantee for obvious reasons. However, if the clinic or practice has a solid track record of profits for five years or more, the lender/lessor will oftentimes abandon the personal guarantee requirement. That is another point that must be negotiated at the inception of the lease.

Choosing a lender or lessee:

Competition is fierce in the equipment financing industry. Acquiring the services of an independent financing consultant is advisable. A properly trained medical equipment financing broker will analyze your particular needs and will know which lender or lessee will be a good fit for your organization. He or she can guide you through the intricate details concerning the contract, which will allow you achieve optimal capital financing.

To learn more about medical financing click here

When people call me, typically one of the first requests they make is for a house in a “nice” neighborhood. And this makes sense to want a neighborhood that is safe and enjoyable. But there are some benefits to buying real estate in the rough part of town or on the wrong side of the tracks. This article highlights some of them.

- There is less worry of your neighborhood going downhill because it is already downhill. Good neighborhoods can get bad and bad neighborhoods can get better. Since the price usually reflects the current condition, buying in a neighborhood that has room for improvement might be a good idea.

- If you are buying a rental, you usually get better cash flow in rough neighborhoods. If you are renting your property, there are more renters and they are more long term. It’s difficult to rent in good neighborhoods because fewer people are looking to rent and those who do are generally there short term while they look for a house to buy.

- You can look better in comparison to other landlords. Landlords in rough areas frequently don’t maintain their properties as well as people in nice areas. Therefore, if you maintain your properties, you can blow away your competition, and charge more for it.

- If you are in a rough neighborhood, you can propose that your property change will improve the neighborhood and you have a better chance of getting a different zoning. Conversely, if you are in a good neighborhood, it’s hard to make the same argument.

- You can buy more property. If you want to spend 500k, you can either buy one house in an upscale neighborhood or six or seven houses in a rougher neighborhood.

- They’re more recession proof. When the economy goes south, real estate in rough neighborhoods is less affected.

In summary, I am not saying you have to buy in a bad neighborhood. But simply that if you are looking for long term investments sometimes its a good idea to wander over the tracks and look around a bit.

Owning a healthcare business or practice can be very profitable and very challenging at the same time. Having to wait up to 90 days to get paid by insurance companies, HMOs and Medicare/Medicaid can wreak havoc on your company’s cash flow. This problem can easily be compounded if you have regular periodic expenses, such as rent and payroll, which must be met.

Going to the bank may be of some help, especially if you are a doctor, are willing to personally guarantee a loan and own a medical office. If you run any other type of healthcare business that bills insurance or Medicare you may be out of luck. Banks almost always require significant collateral and three years of audited financials. To make things more complicated, most bank financing has maximum limits. Much like a credit card maximum, once you reach it, that is the end of the line.

But what if your business is growing?

Medical factoring allows you to finance your business by using your slow paying insurance claims as collateral. In effect it reduces the time it takes you to get paid from up to 90 days down to a few days.

You can use the financing to pay rent, meet payroll and pay suppliers. You can also use it to grow your business.

As opposed to other financing tools, factoring has no arbitrary maximum limits. Your maximum amount of financing is solely determined by how much you invoice.  (See diagram to learn more)

The more you invoice, the more you can finance. Factoring enables you to grow your business and eliminates having to wait to get paid by insurance companies and by Medicare/Medicaid.

Medical factoring is easy to qualify for. It works equally well for new and for established healthcare companies. If you cannot afford to wait up to 90 days to get paid by your insurance carriers, you must consider factoring as a solution.

Kris Koonar By:


In order to survive cutthroat competition in the corporate world, companies have to offer world-class services, which are not only at par but also a cut above the rest. Companies have to provide good services consistently to be able to stay ahead, and to enable survival in providing consistent services; companies require constant and even flow of working capital.

Working capital or revenue is the basic requirement of any company to establish its day-to-day operations smoothly. The day-to-day operational expenses include the capital needed for conversion of raw materials to finished goods or services that can be marketed to generate profits or further revenue and other overhead expenses. Any company’s financial status and efficiency may be ascertained by the amount of working capital the company has.

However most small-scale companies have their assets blocked in accounts receivables. The buyers of the products or services usually make their purchases on credit. Hence the companies have a waiting period of thirty to sixty days or even more before they receive the payments of their products. However during this period of debts waiting to be cleared off, the companies face the crunch of generating the working capital for their daily operations.

As opposed to large-scale companies that have a number to options available to generate or maintain their working capital, small-scale companies often have problems in raising their capital. Thus small-scale companies have to be vigilant about the proper management of their working capital. In order to establish themselves and become successful small-scale companies have to find ways to generate the working capital.

Accounts receivable financing could be the key to solving the problems of deficit working capital. The purchasing of the outstanding receivables or invoices by an accounts receivable company is considered to be accounts receivable financing. This outright selling of the receivables brings in instant cash flow and offers many fringe benefits, giving respite to the fund requirements of the small-scale companies.

It is important to choose the right accounts receivable financing companies that suit all your business needs. Most accounts receivable financing companies offer the secured loan on the accounts receivables based on the age of the receivable. The more current the receivable is, the easier it is to get optimum funding against it. A receivable that is over 90 days usually is not considered for buying by the financing firm. The financing firms usually disburse up to 90% of the receivable bill amount.

However there are firms that can offer up to 95% amount. Rest of the amount would be paid when the debts are cleared off on the receivables. The amount of time taken to process the receivable bill financing is also an important factor to be considered; usually the process is done in 3 to 4 working days before the funds are released, but some well established and experienced firms release the funds in just 1 or 2 days. The fee charged by the financing firm may range from 1% to 5%, so go for the firm that offers a competitive service for a competitive price.

Thus the right accounts receivable financing company can serve many purposes, like providing the free working capital, which enables the firm to concentrate more on the business expansion activities rather than worry about the collections.