Every firm requires resources or financial help to start or develop its operations. Nowadays, numerous financial solutions are available to assist in accomplishing this goal. In recent years, businesses have recognised the value of borrowing funds to keep operations running or for capital projects.
Digging into stored assets or income is not always a prudent idea. The healthcare sector is known for substantial investments, and significant finances are necessary to modernize equipment and systems. Healthcare has always been a focus since it has a direct impact on the well-being of individuals.
Medical equipment loans are sometimes known as healthcare financing. This product is available from a wide range of renowned financial organizations.
In recent years, healthcare has seen some life-changing advancements. Technological advancements have been implemented quickly in the medical field, so the need for innovative medical equipment has increased.
However, access to such modern equipment is necessary to deliver the best treatment possible. Independent medical and smaller healthcare facilities have found it challenging to cover the high costs of such purchases.
Before applying for an equipment loan, the prospective borrower must know some standard terms. Below are a few vital terms you should know; otherwise, you will get confused.
In healthcare equipment loans, many terms are often used to describe loan structures and equipment components. Here are some key terms:
- Credit Term
This refers to the period that a loan is extended, usually in months or years.
- Interest Rate
The percentage of a loan that the borrower charges to use its funds.
- Principal
The loan’s principal amount or balance is exclusive of interest.
- Collateral
Property pledged by a borrower. In healthcare equipment financing, the equipment itself can act as an accessory.
- Down Payment
The total amount due is already paid by the borrower at the time of purchase, less the down payment.
- Monthly Payment
The amount due each month to the lender, including principal and interest, usually for the duration of the loan.
- Duration of Term or Tenure
The duration of a loan agreement is generally one to seven years, depending on the type of equipment and the lender’s terms.
- Amortization
A method of paying off a loan over a long period of time through regular payments. With healthcare equipment loans, this typically requires equal monthly payments, including principal and interest.
- Credit Score
Lenders commonly use a statistical measure of a borrower’s credit rating to assess their credit risk.
- Title Deed
A title deed is a legal document that establishes ownership of the healthcare device being financed. If cash is paid for equipment, the lender will usually hold a letter of credit as collateral for the loan. This ensures that the lender retains ownership rights to the equipment until the loan is paid in full.
- Equipment Lending
An arrangement in which the borrower (collector) makes payments to the borrower for a specified period of time to cover the use of health care equipment, rather than purchasing it outright.
- Residual Value
The lease agreement contains the estimated purchase price of the equipment at the end of the lease term. It can also affect rental payments and purchasing options.
- Depreciation
The decrease in the value of an asset over time. Understanding the depreciation of equipment can be critical to assessing its pricing and financial terms.
- Early Repayment Penalties
Some lenders charge a fee if a borrower repays the loan before the end of the agreed term. This penalty compensates the lender for possible lost interest.
- Fixed Interest Rate
Static throughout the term of the loan, allowing for predictable monthly payments.
- Variable Interest Rate
Variable interest rates depend on changes in the underlying benchmark and may cause monthly payments to vary.
- Fair Market Value (FMV) Lease
A certificate in which the equipment is returned to the lessee at its fair market value at the end of the lease term rather than at a predetermined value.
- Loan-to-Value (LTV) Ratio
The ratio of the loan to the value of the equipment being financed.
- Security Deposit
The definition of a “security deposit” may appear complicated. But it is fairly easy for beginners. In the leasing sector, a security deposit is an amount of money taken from consumers before renting any equipment.
This money is refundable. It serves as security for the provider of rentals in the event of any damage, loss, or theft.Security deposits serve as a safety net, providing you with a feeling of comfort.
It serves as a safety measure against unexpected events that may occur when utilising leased equipment. By using this preventive precaution, rental businesses may promote cautious handling.
- Covenants
The borrower must maintain contractual obligations such as certain financial assumptions or insurance coverage.
- Termination
Options available to the lessee at the end of the lease term, such as purchasing the equipment, leasing it back, or extending the lease term.
Bottom Line
Take the opportunity now to familiarize yourself with the various terms you may encounter during the loaning process.
If you’ve been looking for funding to purchase new equipment, you’ve certainly heard of equipment financing. However, you may not fully understand what it is or how the process functions. Therefore, read the terms thoroughly before you apply.