By Bob Callander

Top Five Questions to Ask before Financing Medical Equipment

Top Five Questions to Ask Before Financing Medical Equipment

Starting a medical practice or any other healthcare business is tough. Running it successfully over several years can be even tougher, especially given the slow pace of government and insurance company payments. With unpredictable cash flow, there’s very little forgiveness if a new business stumbles out of the gate. Everything must be right, including the equipment financing.  Here are the top questions to ask your financing provider…before agreeing to terms and conditions of an agreement:

  1. As the owner of the business or practice, am I personally responsible for this debt?

Typically, the answer is YES you are.  However, once your business experiences several years of confirmed profitability, liquidity inside the company, accumulated unencumbered assets, and good credit history, owner guarantees will become less important to lenders.

  1. Must new debt be secured with business and/or personal assets other than the financed equipment itself?

Maybe. While this is often a requirement, it doesn’t have to be. The strength of your personal credit and your business’s historical profitability will come into play. Also, while bank loans are more often approved based on the value of all business assets, equipment leases tend to be secured only by the assets included in the lease.

  1. If my business fails before the equipment debt is paid off, will I still owe the entire balance or will the equipment’s resale value cover what is owed?

Banks do not want to be in the used equipment business. Neither are they venture capitalists. Prepare to pay off equipment loans and leases in full. If the equipment is worth more than owed, sell it after paying off the debt, not before.  In short, don’t make selling the equipment your banker’s responsibility.

  1.  If my business takes off, will I likely qualify for additional financing to expand?

Maybe. Once you show a proven and profitable business concept and a good payment history, financing will become easier. Lenders want to see you do well. And, they want you to come back often, if you can show steady and profitable growth. Expect the financing doors to open wider over time.

  1. When loan and/or lease payments are not made on time, should I expect added fees, interest assessments, late penalties, etc.?

Financing contracts typically contain fees, penalties and additional interest if you don’t live up to the payment terms. This should be expected, and can get quite expensive. Don’t take missed and late payments lightly. Your personal credit score will be affected along with your business credit.  Avoid this!  It’s best to make payments on time.

Equipment financing and leasing for any business can be a great way to leverage your capital, but know what to expect. Ask these questions before agreeing to any non-cancelable agreements and don’t sign until you have the answers. You’ll be glad you did.