Financing your medical equipment Part 1: Vendor financing

Healthcare organizations need regular update of its medical equipment and that will require a significant invest of company resources. Medical equipment especially imaging equipment can cost hundreds of thousands of Rends and that can have impact on company’s cash flow. Purchasing the latest medical equipment requires a significant financial commitment and that can have an impact on your working capital. There are many option available each has pros and cons and organizations or individuals should choose options that match their needs. Vendor financing has become an increasingly popular option.

What is vendor financing?

Vendor financing is a type of financing in which the seller of a product or service agrees to finance the purchase for the buyer. This can be done in a variety of ways, such as through a deferred payment plan, a loan, or by taking an equity stake in the buyer's company.

Vendor financing is often used in situations where the buyer does not have the upfront cash to pay for the purchase, or where traditional lenders are unwilling to lend to them. It can also be used to structure a deal that is mutually beneficial for both the buyer and the seller.

Here is an example of how vendor financing might work:

• A buyer wants to purchase a business from a seller. The buyer has some money to put down, but they do not have enough to pay for the business in full. The seller agrees to finance the rest of the purchase price over a period of time, at a fixed interest rate.

• A buyer wants to purchase a piece of equipment from a vendor. The buyer does not have the cash to pay for the equipment upfront, but they have good credit. The vendor agrees to sell the equipment to the buyer on a deferred payment plan, with a down payment and monthly payments.

• A buyer wants to purchase a home from a seller. The buyer has a good job and a good credit score, but they have not been able to save up a large down payment. The seller agrees to take a second mortgage on the home, which the buyer will repay over time.

Vendor financing can be a good option for both buyers and sellers. For buyers, it can make it possible to afford a purchase that they would not otherwise be able to make. For sellers, it can help to close a deal and generate additional revenue.

Medical equipment loan provided by suppliers can be a better option for most organizations. This could be a better options because banks, unfamiliar with the equipment and after market value might consider it riskier and charge higher interest. Companies such as Johnson and Johnson offers a range of financing solutions tailored for medical professionals. These manufacturers have their own financing division that offer good terms to support sales for the business. Those deal are mostly better structured. The advantage is that you can pay interest and principal from the future cash flows. The equipment itself can act as collateral and additional collateral may not be needed. The loan is structured based on credit history and financial status of the borrower. Some suppliers provided loan value of up to 80%. Another advantage with dealers is one stop shop where you get your services under one roof. They also offer lower upfront cost and easy ability to upgrade since they regularly have to sell new equipment. There’s also tax incentives that may include write offs and deductions.