Health Service Focus

17.07.17

Financing options explained: How to control capital expenditure on healthcare equipment

It is no secret that budgetary constraints in healthcare are, to put it mildly, tight. Despite best efforts to centralise, rationalise and undersize NHS spending, the enormous and perennial top-down financial pressures inevitably filter down to the individual clinic and hospital department where the most difficult spending decisions have to be made. 

Capital expenditure on equipment is an absolute necessity on the frontline of healthcare. Not only does the latest technology save lives, it can also go a long way to making care delivery more efficient and, in the long term, affordable. 

But cutting-edge medical equipment comes with a cost – and that doesn’t account for all capital costs in GP surgeries, clinics and hospitals, either. Healthcare services also need IT systems, beds for patients and much more besides. 

All of this adds up to a lot of difficult decision-making, as budget-holders at trusts and CCGs try to balance financial pressure from above with the demands of providing world-class service. The aim of the game is to make a little go as far as possible, by making smart purchasing decisions to gain the maximum long-term impact on service.

Making money do the hard work 

Without endless capital reserves and little room for manoeuvre, finance becomes all-important. Finance is how you can make the money do the hard work and create flexibility where you don’t have any. If you understand how to use the right options in the right situations, finance allows you to procure the equipment you need while keeping costs under control. 

Here are the main asset finance options available to healthcare buyers, and when they are most useful:

Hire purchase 

Hire purchase allows you to spread the costs of capital expenditure over a fixed period of time. Once the payment term is completed, you get the benefits of outright ownership, just without the upfront costs. 

Arrangements will normally include a nominal deposit and then regular repayments, which include interest. Payment options are often flexible, allowing you to stay in control of your budgets.

Finance lease 

A finance lease is one of the most flexible finance options available. As with hire purchase, you spread the capital costs of a new piece of equipment over an extended period and use it in the meantime on a rental basis. The difference is, you don’t have to commit to full purchase upfront, and repayment rates are usually lower. 

At the end of the agreed term, you have three choices: you can pay off the remaining balance in a ‘balloon payment’ to buy the equipment outright, extend the lease arrangement, or cancel it altogether and return the equipment. This is a great option if you are not certain how long a piece of equipment will be operationally useful to you, or if you want to keep expenditure down in the short term. 

Operational lease 

An operational lease is a full rental arrangement – your finance provider purchases the equipment, and you lease it from them at a fixed rate over a fixed term. Unlike with a finance lease, there is no option to purchase at the end and the asset is simply returned. This is a useful option for getting access to high-value or specialist equipment you need for only a limited time, or for protecting yourself if its resale value deteriorates quickly. 

Unsecured loan 

A loan allows you to complete a capital purchase upfront, using the lump sum loaned to you. There is no period of third-party ownership as with a hire purchase, and for bookkeeping purposes, interest repayments are a finance cost rather than part of the capital costs of purchase. 

Find out more

Peregrine Leasing is one of the UK’s leading providers of asset finance, with more than 25 years’ experience in the healthcare industry. Visit www.peregrineleasing.co.uk to find out more.

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