Medical device players and their banking partners offer alternatives to traditional bank credit. Among the various rental formulas, financial rental and leasing occupy a prominent place. What are the differences and how do you choose? Advice from Medical Place.
Leasing and financial leasing are financing techniques. They allow a business to use property without owning it. The interest is therefore to preserve its financial capacity. However, there is a major difference between leasing and financial rental: the option to buy at the end of the contract.
Financial rental: renting without the possibility of buying
It is a contract that has the effect of transferring to the lessee, directly or indirectly, most of the benefits and risks inherent in the ownership of an asset, whether or not the ownership is finally transferred.
At the end of the rental contract, the company has two options:
- Return the property to the lessor
- Extend the rental contract if the lessor agrees
Leasing: the possibility of exercising the purchase option
This form of rental is introduced by law: it is an operation to rent movable or immovable property, tangible or not, by companies that remain owners when this transaction, regardless of its qualification, gives the tenant the possibility of acquiring all or part of the rented property at an agreed price, taking into account, at least in part, the payments made as rent.
At the end of the leasing contract, the company has three options:
- Return the property to the lessor
- Buy the property based on a residual value agreed by both parties when the contract was put in place
- Extend the lease contract if the lessor agrees
Adjust the residual value, control the amount of rent
For significant movable assets, in terms of cost and lifespan, it is advantageous to adjust the residual value of the asset. The objective is to manage rent amounts in order to avoid too heavy a financial burden.
The payment method may be based on a constant, decreasing or specific rent.
On the other hand, the lessee may choose to regularly monitor the residual value of the property he is renting and plan for possible updates.
Residual value calculation
From an accounting point of view, the calculation of the residual value corresponds to the purchase price, less the amount of accumulated depreciation.
For a company, depreciation corresponds to the loss in value of the asset over its lifetime, due to wear and tear or obsolescence.
To calculate this residual value, it is therefore necessary to have depreciation tables in order to know what depreciation rate applies to this or that type of property. The level of depreciation is obtained by comparison with similar properties, available on the second-hand market. The residual value is high if the period of use of the asset is less than its theoretical lifespan.
In furniture leasing, the residual value is generally estimated between 1% and 6% of the original price excluding taxes.
Rental financing for medical equipment: more and more sought after by buyers
The French market for renting medical equipment is stronger than that for buying[1]. Hospital decision-makers, who have long preferred to buy, tend to increasingly turn to renting. And for good reason: the advantages of renting medical equipment financially are numerous.
The four advantages of renting:
- Freeing yourself from frozen capital. The significant cost of rapidly obsolete equipment consumes budgets that cannot be devoted to other items. Financial rental is an interesting choice insofar as it only finances use, with no purchase option.
- Play on residual value. The lessor can deduct the estimated resale price from the monthly rent.
- Integrate services. Installation, maintenance, insurance are often associated with the financing of medical equipment by leasing.
- Manage budgets. Managers can measure the performance of their equipment by comparing their monthly costs and the number of actions performed.
Operational leasing: a variant of financial leasing
Operational leasing uses the same mechanisms as financial leasing. The difference comes from the VR taken at the end of the contract. Indeed, the risk taking in the long term for the “LOC OPÉ” is much stronger and cannot be done without the help of an Asset Manager, who will calculate and anticipate a resale value in X years.
Such experts are rare on the market. They combine solid product knowledge, second-hand resale networks and upcoming technical innovations. That is why not everyone offers this possibility.
Pay-per-use billing: a paradigm shift?
A new offer is coming onto the market: invoicing by use or by service. This possibility will tend to expand in the coming years. It meets specific needs and is not intended to be offered for all equipment. It takes up the operation initiated years ago in office automation through copiers and their famous copy cost. In this framework, risk taking is shared between the supplier and the customer. The customer is committed to a minimum invoiced volume, and anything in excess is billed at a lower cost to the customer. For its part, the supplier receives more revenue. A win-win deal but not without risks, however.
All these financing opportunities are offered by medical place's partners.
[1] https://franfinance.com/actualites/constructeurs-loueurs-distributeurs-de-materiel-medical-quels-arguments-pour-declencher-le-renouvellement-des-equipements/
