There is a lot to keep up with these days in the veterinary industry. New technological must-haves are arriving everyday, not to mention the older equipment in your practice that has needed replacement for years. Just as there are misconceptions on the equipment itself, there’s also much misunderstanding regarding how best to pay for it. The old standby has historically been leasing because for so long that has been the only option. Now, when you’ve finally decided on that perfect new, state-of-the-art must have piece of equipment, you have a choice on how best to pay for it. Leasing has some strength’s to your balance sheet but you should be discussing traditional bank financing as well with your CPA.

 Here are a few things to consider:

• Prepayment Penalties: With most leases when you sign you are typically obligated for the entire term of payments with no ability to payoff the loan at anytime for the principle balance. If you replace the equipment before the end of the term, you will still be obligated for the remaining payments regardless of whether you still have the equipment or not. If you decide to pay it off all together in year three of a five-year term, you will also be writing a check for the interest on the remaining two years. I have seen time after time a lease payoff cost more in year three than the original piece of equipment cost in the first place. Most traditional bank financing will have prepayment options available to you. Ask your finance representative what your prepayment options are and require it in writing. Many bank loans allow you to pay off your loan in year 1 of a 7-year term without penalties and your payoff balance is calculated by the principal due plus the interest charge from your last billing cycle to the payoff date.

   

• Terms: The term you choose determines your monthly payment, very similarly to your home mortgage, the longer the term means more flexibility and additional income. Lease options will give you terms up to 60 months typically. Many finance options allow terms up to 120 months. When you combine a longer term with a good prepayment option, you gain more control of the financial situation and can ease into the new equipment you’ve just purchased with lower monthly payments, improving your return on investment. Rate: Interest Rate plays a major role in how much the equipment will cost in the long run (combined with term, structure, fees, etc). There are many ways the rate quoted can be manipulated. Whether you are leasing or financing, the rate should be disclosed on the documentation clearly. If it’s not, question it! If it is ask if it is the actual APR and does the rate quoted include any buyout or lease majority. Leasing companies for years have used terms like Lease Rate, Stream rate and even Rate to misdirect you from the actual APR.

   

• Fees: Fees are the real life magic show of the finance world! Yes, you received a great rate, but your first payment is due up front and there’s a substantial fee due at signing. Those fees and advance payments add up and add an extra few percentage points to the actual APR. When reviewing your options look behind the magic curtains. The simpler the details of the loan the less there is to hide. The real benefit to a lease is when you plan on replacing equipment consistently and the lease payment is based on a fair market value of the equipment at lease end. For example you purchase a piece of equipment for $25,000 and you only pay in lease payments $15,000 during a 3 year term at which point you return the equipment and get a brand new asset. This is similar to a car lease and can make sense depending on the type of equipment and its longevity. My word of advice is to not allow yourself to be taken advantage of by a finance company or leasing company. Ask questions, get things in writing and have your CPA review those documents. I have seen DVM’s get taken for $5-$10,000 on leases while spending $250 with their CPA could have saved them most of the loss. At least shop the lease with a traditional bank loan to have another option.

Contributed by -- Melisa K. Edwards

Regional Sales Manager – Veterinary Division Bank of America Practice Solutions

www.bankofamerica.com/practicesolutions