Few industries depend on up-to-date equipment as crucially as the medical field. State-of-the-art equipment enhances patient comfort, ensures accurate diagnostic results, and plays a role in attracting new clients while retaining existing patients.
However, many small business owners in the medical field may lack the necessary working capital to purchase new tools and machines. Medical equipment financing provides a viable solution to this challenge.
Let’s explore how medical equipment financing operates, its associated costs, and the application process.
Related: Where to Find Working Capital Loans Options for Small Business Needs
What Is a Medical Equipment Loan?
Medical equipment loans offer financial assistance to healthcare professionals, including doctors, surgeons, dentists, and specialists, who need to acquire equipment for their practices but cannot afford to purchase it outright.
Various types of financing options are available, ranging from term loans to equipment financing and government-backed loans, all tailored to help you procure essential medical equipment for your business.
How Does Medical Equipment Financing Work?
Medical device financing involves a medical equipment finance company or lender providing funds for the acquisition of equipment. The borrowed amount, plus interest, is repaid through regular installments.
It’s crucial to understand that equipment financing is typically secured, meaning the purchased medical equipment serves as collateral for the loan. Depending on the type and condition of the equipment, you may receive funding covering up to 100% of its value. This makes it feasible to obtain a medical equipment loan with minimal or no down payment required.
Do You Need a Medical Equipment Loan for Your Small Business?
What Type of Medical Equipment Can I Finance?
You may wonder if the type of tools or machinery you need can be purchased with medical equipment financing. Good news: Most common medical devices are eligible.
A medical equipment loan can be used to acquire:
- X-ray and other imaging equipment
- Diagnostic equipment
- Dental instruments
- Hospital beds and examination tables
- Optometry equipment
- Dermatology equipment
- Chiropractic equipment
- Surgical equipment
Can I Get a Loan to Buy Used Medical Equipment?
Many lenders offer loans tailored for medical professionals seeking to purchase used medical equipment, given the high costs associated with medical machines and devices.
Securing funds for used medical equipment purchases can be more challenging compared to other financing options. This difficulty stems from factors such as the type, age, and condition of the equipment, which influence the required down payment, interest rate, and repayment terms.
For instance, if you intend to buy imaging equipment that is 7 years old and nearing obsolescence by its 10th year, you may need a higher down payment compared to purchasing a brand-new machine with a longer functional lifespan. Similarly, the repayment period might be shorter for older equipment compared to newer models.
These adjustments are necessary because medical equipment finance companies need to ensure they can recover their investment if you default on the loan. Considering that medical equipment typically has a useful life of 7-10 years, lenders must carefully assess when equipment will depreciate and potentially lose value. After all, if the equipment becomes obsolete, the lender may face challenges in recovering their funds through repossession and resale.
Can I Get a Medical Equipment Leasing Loan?
If you’re considering medical equipment leasing, there are a couple of options available to you.
One option is to lease the equipment outright, which involves renting it for a specified period while the healthcare equipment leasing company, often the manufacturer or a partnering bank, retains ownership and may sell the used equipment to another business. This option is suitable for medical professionals who frequently update their equipment but may not be ideal for those with smaller budgets.
Another option is lease-to-own agreements. These agreements function similarly to regular leases but provide you with the opportunity to purchase the equipment before the lease term concludes. Lease-to-own can be beneficial if you’re unsure about committing long-term or if you need to manage lower payments until your revenue increases.
Types of Medical Equipment Loans
There are a few different types of medical equipment loans for doctors and other healthcare professionals. Available options will be determined by your personal and business credit score, the equipment you’re buying and other factors.
Equipment Financing
Equipment financing is often the preferred option for many medical companies and practices seeking healthcare tools and devices. Some specialized medical equipment finance companies focus exclusively on offering these loans.
Rates for equipment financing can vary among lenders. Repayment terms from medical equipment financing companies and other lenders typically range from 1 to 5 years. Longer terms result in lower monthly payments but may increase the risk of default for lenders.
The specific terms you qualify for will depend on factors such as your credit history and the expected useful life of the equipment you intend to purchase.
Term Loans
Instead of loans from specialized medical equipment finance companies, conventional term loans are another viable option.
Banks typically offer term loans with extended repayment periods for fixed assets that maintain value, such as real estate, which can span up to 25 years. However, medical equipment financing through term loans tends to have shorter maturities. Many equipment term loans mature within 10 years or less.
Securing a longer-term loan can often result in lower interest rates for your medical equipment financing compared to other options.
Short-Term Loans
For businesses interested in purchasing used medical equipment or low-value items such as small dental instruments, a short-term loan can be a suitable option.
These loans typically have repayment terms of less than 2 years, with some financing options offering terms as short as 3 months.
Short-term loans also cater to businesses that may not qualify for long-term financing due to lower credit scores.
SBA Loans
Partially guaranteed by the Small Business Administration (SBA), certain SBA loans serve as viable solutions for financing medical equipment.
These loans typically have a maximum maturity of 10 years. Moreover, interest rates are capped by SBA guidelines, offering small business owners one of the most cost-effective financing options available. However, the application and underwriting process can be lengthy, often spanning several months.
If immediate acquisition of medical equipment is necessary, exploring alternative small business funding options may be necessary.
Business Line of Credit
When you obtain a business line of credit, you receive a credit limit based on your creditworthiness. After withdrawing funds, you repay them in regular installments until the balance is cleared. As you pay off the borrowed amount, you can access the credit line again, providing flexibility for recurring equipment upgrades.
Merchant Cash Advance
Another option for financing medical equipment is a merchant cash advance (MCA).
Unlike traditional equipment loans, MCAs operate on a different repayment model. Instead of monthly installments with interest, MCAs use factor rates to determine the total cost of funding, which remains fixed regardless of early repayment.
Repayments are typically made daily or weekly, deducted from a percentage of your credit card transactions or via automated clearing house (ACH) payments from your business bank account.
MCAs are suitable for medical professionals with poor credit or those needing quick access to funds. Many alternative lenders, including iBusinessLender’s partners, can approve funding within hours and deposit capital into your business account within 24 hours of approval.
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Credit Score Requirements for Medical Equipment Finance
At iBusinessLender, a borrower needs the following minimum credit scores to be considered for each type of medical equipment finance option listed.
Financing Type Minimum Credit Score Equipment Financing 620 Term Loan 600 Short-Term Loan 540 SBA Loan 650 Business Line of Credit 560 Merchant Cash Advance 500
Medical Equipment Loan Interest Rates
Your medical equipment loan’s interest rate will vary based on many factors.
Loan Type
The first factor determining your interest rate is the type of loan you apply for. Remember, a business owner might not qualify for certain loans because of the following:
- Low credit score
- Low revenue
- Insufficient time in operation
Creditworthiness
Having a low credit score not only limits access to certain lenders and financing options but also results in higher interest rates.
Even if you qualify for medical equipment loans with bad credit, you may face interest rates that exceed 10% and could even surpass 20%.
How Much Can My Business Qualify For?
Time in Business
The duration your business has been operational significantly impacts the interest rate you’ll receive. Lenders perceive younger businesses as riskier.
For startups, accessing funding might mean facing high interest rates or being ineligible for certain programs altogether. Many healthcare equipment financing firms typically require businesses to have a minimum operational history of at least 2 years.
If your business hasn’t reached this milestone yet, exploring alternative funding options like MCAs, which often accept businesses operating for just 4 months, could be beneficial.
Revenue
Your annual revenue plays a crucial role in determining your eligibility for financing.
For equipment financing through iBusinessLender’s network of lenders, businesses are required to generate a minimum of $160,000 in annual revenue to qualify.
In contrast, other financing programs have lower revenue thresholds. For example, businesses seeking an MCA typically need to generate at least $100,000 in annual revenue to qualify.
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Medical Equipment Financing Costs
Want to estimate what hospital or other medical equipment financing will cost you? Check out our equipment financing calculator to learn more and estimate your cost of borrowing.
Here are business financing interest rates offered through iBusinessLender’s lending partners:
Financing Type Interest Rates Starting at … Equipment Financing 8% Term Loan 7% Short-Term Loan 10% SBA Loan 7% Business Line of Credit 8% Merchant Cash Advance 1.10 (factor rate)
Applying for Medical Equipment Financing
The process of applying for medical equipment financing is similar to the application process for most small business funding options.
1. Compile Necessary Information
Before you complete your application, make sure you have the following financial documents and other relevant information on hand:
- 4-6 months of the most recent bank statements
- Tax returns
- Balance sheets
- Profit-and-loss statements
- Personal information and details of partners or co-owners of the business
- Personal and business credit scores
- Doing-business-as (DBA) name, if applicable
- Articles of organization or incorporation
- Investment information, if applicable
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 quickly processed.
2. Complete the Application
You’ll need to provide both personal and business information when completing your application. Additionally, you’ll be required to attach copies of relevant documents, such as bank statements.
When applying for a medical equipment finance loan through a conventional lender like a bank or credit union, consult with a representative to understand how they prefer to receive your paperwork. They may request documents to be submitted online or in person.
Alternatively, working with an alternative lending provider such as iBusinessLender allows you to complete the entire application process online, including uploading necessary data, which typically takes only a few minutes.
3. Vetting and Approval Process
After verifying your financial data, the medical equipment finance company or lender will evaluate your application for approval.
The timeline for securing funding varies depending on the type of financing and lender chosen. Conventional lenders may take several weeks to over a month to review and approve your application. This process may involve virtual or in-person meetings and possibly an on-site inspection of your business.
On the other hand, alternative lenders streamline their application processes, enabling quicker processing of funding requests. Approvals can be received within days, and in some cases, funding can be disbursed on the same day as approval.
