Few industries are as reliant on having updated equipment as the medical field. State-of-the-art equipment not only provides patient comfort and accurate readings, it draws new clients while keeping the ones you have satisfied.
That said, many small business owners in the medical field may not have the working capital to buy new tools and machines. Medical equipment loans offer a solution to this problem.
Let’s go over how medical equipment financing works, how much it can cost and how to apply.
How Does Medical Equipment Financing Work?
Medical equipment financing provides loans for medical professionals such as doctors, surgeons, dentists, specialists when they can’t afford to buy necessary equipment outright.
It works similar to a typical business funding. A medical equipment finance company gives you a sum of money to buy the equipment — and you’re required to pay it back over regular installments.
These loans are secured like other equipment financing: When you buy medical equipment, the product itself acts as the collateral for the loan. Depending on the type and condition of the equipment, you can receive up to 100% of the value. This makes it possible to get a medical equipment loan with little or no down payment.
Medical Equipment Loan FAQ
Here are some frequently asked questions regarding medical equipment financing.
What Type of Medical Equipment Can I Finance?
You may be wondering if the type of tools or machinery you need can be purchased with medical equipment financing. Good news: Most common medical devices are eligible.
Small supplies and equipment of low value may not qualify for funding because medical equipment finance companies like to make sure the return on their investment is worth their financial risk. Equipment that a small business owner is unlikely to be able to buy outright should qualify for financing, however.
Medical equipment loans can be used to acquire:
X-ray and other imaging equipment
Hospital beds and examination tables
Can I Get a Loan to Buy Used Medical Equipment?
Many lenders provide loans for medical professionals looking to buy used medical equipment. Indeed, there’s a market for used equipment. (After all, medical machines and devices are expensive.)
Qualifying for funds to buy used medical equipment can be a bit trickier than other financings. The type and condition of the equipment will dictate the down payment, interest rate and repayment terms.
Why? The medical equipment finance company needs to ensure it can make money off of the collateral in case of default. Because medical equipment tends to have a short shelf life, lenders must take into account when machines and devices will lose their value.
For example, a piece of imaging equipment may become outdated after 10 years. If you want to purchase one that’s 7 years old, your down payment may go up and your repayment term may be shorter than if the machine was 3 years old. Once equipment becomes outdated, the lender can’t make any money off of it if they have to repossess and sell it.
Can I Get a Medical Equipment Leasing Loan?
There are a couple options available for medical equipment leasing.
Your first option is to lease the medical equipment outright. Doing so involves essentially renting it for a specified period, at which time the leasing company (usually the manufacturer or a bank its partnered with) retains ownership and can sell the used equipment to another business.
This is a good option for medical professionals who want to constantly update their equipment, but may not work for those with smaller budgets.
The other option for medical equipment leasing can be trickier. Some manufacturers and lenders offer lease-to-own agreements. These pacts are like regular leases, but give you the option to buy the medical equipment before the lease is over.
Leasing to own can work if you’re unsure of whether you want to commit long-term or need lower payments until you begin to make more money.
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Types of Medical Equipment Loans
There are a few different types of medical equipment loans for doctors and other professionals in the health-care field. Your choices will be determined by your personal and business credit score, the equipment you’re buying and other factors.
Equipment financing is the default choice for those buying medical equipment. This financing solution is tailored for buying tools and devices for small business, and some lenders specialize in these loans exclusively.
Equipment financing rates will vary by lender. Repayment terms fall between 1-5 years. Longer terms give you lower monthly payments, but can raise the risk for lenders in case of default.
Your terms will be based off of your credit history and the longevity of the equipment you’re buying.
You can use conventional term loans from lenders without specialized equipment-financing programs.
Banks often provide loans with longer terms, but they’re mainly for assets that keep their value over a longer period. Medical equipment financing through term loans may be considerably shorter, about 5 years maximum.
If you can secure a longer term loan, interest rates may be lower than other options.
Short Term Loans
A short-term loan may be an option for businesses that want to buy used medical equipment or low-value items, like small dental instruments. Repayment terms for these loans are less than 3 years and usually 3-18 months. Short-term loans work similarly well for businesses with credit scores that don’t qualify for long-term options.
Guaranteed in part by the Small Business Administration, certain SBA loans can be used as medical equipment financing.
They offer terms similar to term loans, making them an affordable option for larger purchases. As with term loans, it can take months to receive funding through SBA programs.
If you need to buy your medical equipment immediately, you may have to look into alternative small business funding options.
When you secure a business line of credit, you’re given a funding limit based on your creditworthiness. Once you withdraw money, you pay regular installments until the amount is paid in full. As soon as it’s paid off, you can withdraw funding again from your credit limit as needed.
This is a great alternative to medical equipment loans if you need to consistently upgrade their equipment.
An MCA works a bit differently from a loan. Instead of paying the sum of cash back with monthly installments and an interest rate, MCAs use factor rates to determine a set amount you must pay back. Payments are taken by a percentage of your credit-card transactions or ACH payments taken directly from your business bank account.
MCAs are a great alternative to loans for medical professionals with bad credit or those who need money fast. Many alternative lenders, including Fast Capital 360’s partners, can provide funding in as little as 2 days.
Medical Equipment Loan Interest Rates
Your medical equipment loan’s interest rate will vary based on many factors.
The first factor that determines your interest rate is the type of loan you apply for. Remember, a business owner might not qualify for certain loans because of:
low credit scores
having been in business for a short time
Here are some common starting points for interest rates on various options:
Interest Rates Starting at...
Business Line of Credit
Merchant Cash Advance
1.14 (factor rate)
Low credit scores not only disqualify small business owners from certain lenders and financings, but they will raise your interest rate as well.
While you can still get medical equipment loans with bad credit, your interest rate might exceed 10% or more than 20%.
How long your business has been in operation also plays a role in your interest rate. The younger your company is, the riskier it is to lenders.
Seeking funding as a startup could mean steep interest rates up or disqualification from certain loans altogether. Most medical equipment financing companies require your business to be at least 2 years old.
If you haven’t met that requirement yet, you might consider alternative funding options such as MCAs, which require companies to be business for at least 6 months.
Your annual revenue works similarly to the age of your business when determining medical equipment loan interest rates.
For example, equipment financing and term loans require you to generate more than $100,000 in yearly revenue. MCAs, however, can require much less than that.
Still unsure about the costs of financing medical equipment? Check out our equipment financing calculator to learn more and estimate your cost of borrowing.
Applying for Medical Equipment Financing
The process of applying for medical equipment financing is similar to most small business funding. First, you’ll need to compile the necessary information.
Have the following financial details on hand:
Profit and loss statements
Small business tip:
Some medical equipment finance companies may ask to see more financial information to assess your application. Always have up-to-date financial reports on hand to ensure your application can be processed quickly.
Once you have those documents ready, you’ll have to provide more basic information, including information about you and your practice.
Once your financial data is verified, the lender will decide whether to approve your application.
Depending on the type of financing and lender you choose, the time it takes to secure funding can vary. If you apply for a medical equipment loan through an online lending marketplace such as Fast Capital 360, you can have funding in as little as 2 days.