rentals (arrangements between diagnostics companies and laboratories in which
an analyzer will be placed in a laboratory
in exchange for the guaranteed purchase
of reagents over a period of time) in the
pathology lab, “cost per copy” for photocopiers, and paper supply contracts for
network printers. These are all variations
on a lease contract. Then there are mobile communications and pagers that are
leases driven by airtime contracts. The
opportunity highlighted in the survey is
for all not-for-profits to understand how
leasing can be a valuable financing tool
that has a role in managing the institution’s balance sheet. The pros and cons
of leasing are addressed in Box 3, where
the benefits promoted by the lessors are
reassessed from the lessee’s perspective.
The survey revealed that imaging equip-
ment leases are predominantly provided
from three sources:
• 46% of survey respondents said that
they lease from the equipment vendors
• 32% lease from independent leasing
• 12% lease from their own banks
A surprise is that only 3% utilize their
state tax exempt leasing programs. Given
that 93% of survey responses came from
hospital diagnostic imaging department
directors and managers, there are likely
a significant number of not-for-profit
groups that might benefit from exploring
the equipment financing options avail-
able from their local state conduit finance
authority. Good examples of finance
authorities are the Dormitory Author-
ity of the State of New York (DASNY)
and the Illinois Finance Authority (IFA).
DASNY ( www.dasny.org) operates the
TELP (tax-exempt equipment leasing
program) and the IFA ( www.il-fa.com)
has the Healthcare 501(c)( 3) Equipment
Finance Program. Many other states op-
erate similar programs and a good source
of information is the National Associa-
tion of Health and Educational Facilities
Finance Authorities ( www.naheffa.com)
with links to individual state sites.
BOX 2. Six Benefits of Leasing as Seen by Lessors 1) Cash flow benefits because payment is typically spread over three to five years. 2) Lifetime costs can be managed by adding maintenance and consum- ables into the lease contract. 3) Technology upgrades are more easily available. 4) The lessee does not have to wait for an allocation of capital to acquire the equipment. 5) The lessor has the final risk when equipment is returned at the end of a lease. 6) The lessee has a sense of control over the equipment and the quipment vendor. BOX 3. Pros and Cons of Leasing for the Lessee
• Payments are spread over three to five years; however, the cost of own-
ership will be higher than the cash purchase price because the lessor
charges interest in each lease payment.
• Lifetime costs can be fixed by adding maintenance and consumables
into the lease contract. Make sure the monthly payment is unbundled
so that you get best pricing for each component and have transparency
to the calculation of the lease payment.
• Technology upgrades can be included during the primary period of the
lease by extending the remaining lease term or by increasing the lease
payments. Ensure the best possible price for the upgrade and then have
transparency to the calculation of the new lease payment.
• The lessee does not have to wait for an allocation of capital to acquire
the equipment. Only an operating lease may not be recognized as capi-
tal expenditure with lease payments being accounted for as operating
expenses. It is essential that a detailed cash flow analysis is completed to
demonstrate how the leased equipment will generate cash more than
sufficient to cover lease payments and associated operating costs. Unless
the leased equipment generates positive cash flow over the life of the
lease, there is no economic benefit to signing the lease.
• The lessor has the final risk when equipment is returned at the end of an
operating lease only. However, lessors usually calculate operating lease
payments (and equipment residual values) to have an additional profit
opportunity when the equipment is sold at the end of the lease. Thus,
there is limited real risk for the lessors.
• The lessee has a sense of control over the equipment and the equipment
vendor but only if the lessee stops making lease payments if the equip-
ment is defective. Lease contracts have language specifically designed
to prevent the lessee from exercising this remedy.