The power of equipment financing: Boosting cash flow, flexibility, and innovation in healthcare

Operating in a challenging environment

Various external dynamics are placing considerable strain on bottom-line profitability for both inpatient (health systems and hospitals) and outpatient (physician practices) healthcare service providers, including:

• Rising operating expenses
  • Elevated labor costs — Ongoing shortages of nurses and clinical staff have led to an increase in wages and an uptick in reliance on more expensive contract labor. At the same time, a high degree of burnout across the healthcare industry is contributing to elevated turnover and increasing the cost of recruitment and retention.
  • Medical supply expenses — Prices for medical supplies, devices, and drugs continue to rise due to global supply chain disruptions, increased tariffs, and, in some cases, limited bargaining power among providers.
  • Facilities expenses — Inflation has driven up the costs of maintaining and improving infrastructure, utility expenses, and rental rates for outpatient sites.
• Reimbursement rates — Reimbursement rate increases and adjustments from Medicare, Medicaid, and commercial payors lag behind the pace of rising overhead costs, leaving providers with a funding gap.
• Regulatory and compliance demands — From investing in cybersecurity protections against fraud to complying with changes in rules about price transparency, the amount of capital required to sustain healthcare operations is rising.
• Consolidation and competitive pressure — Among outpatient service providers, pressure is mounting to join larger health systems, which can offer stronger contract negotiating power, economies of scale, and greater access to capital. This trend toward consolidation can make it difficult for independent providers to compete with larger networks.

Equipment financing can be a powerful tool to help healthcare organizations manage cash flow during times of economic uncertainty in a tight reimbursement environment.

Equipment financing offers a high degree of flexibility

Historically, equipment acquisition strategies were built around one variable: the benefit of depreciation. Today, healthcare organizations are balancing the need to align with complex regulatory requirements, support more rapid technology upgrades, and optimize their tax and accounting processes. Fortunately, there are numerous financing and lease structures that can provide healthcare organizations with the flexibility to achieve their operational and financial objectives.

Equipment financing is not limited to acquiring high-cost medical equipment; it can be used for laboratory equipment, office or patient-care facility furniture and fixtures, HVAC upgrades, energy generation and storage systems, software purchases, training, and more. Specific to the healthcare industry, equipment financing can support electronic health record (EHR) upgrades and optimization, maintaining up-to-date cybersecurity infrastructure and value-based care readiness through digital investment, and filling gaps in service and process as labor shortages persist.  

In addition, financing or leasing options can structure payments to align with revenue patterns. For example, outpatient clinics often see an increase in the volume of elective procedures during the second half of the calendar year, after patients have met the annual deductibles on their insurance plans. Healthcare CFOs and treasurers can work with lenders to structure their payment schedules according to the ebb and flow of revenue in their organizations.

Choosing the right equipment financing structure

Equipment financing comes in a variety of forms, allowing healthcare organizations to choose from different structures to tailor programs that meet their distinct capital needs. Common equipment financing structures include the following: 

• Loan with 100% financing
  • Tax ownership: The borrower is the tax owner and claims depreciation and interest deductions.
  • Accounting treatment: The asset and liability appear on the balance sheet. Payments are split between principal and interest.
  • Capital preservation: Enables clients to acquire equipment without upfront cash outlay, preserving working capital and liquidity.
  • Comprehensive coverage: Financing can include not just the equipment cost, but also soft costs, including installation, taxes, and training.
• $1 buyout lease
  • Tax ownership: The lessee is considered the tax owner and claims depreciation.
  • Accounting treatment: Classified as a finance lease under ASC 842. The asset and liability are recorded on the balance sheet, and depreciation and interest expense are recognized over time.
  • Ownership advantage: Treated as a purchase for accounting purposes. Equipment appears on the balance sheet and ownership transfers at lease-end for a nominal amount.
  • Fixed payments: Predictable fixed monthly payments, simplifying budgeting.
• Fair Market Value (FMV) lease
  • Tax ownership: The lessor retains tax ownership and claims depreciation. Lessor passes on tax savings to the lessee via lower monthly payments.
  • Accounting treatment: The lessee records rental payments as a lease expense, and the lease may be partially off-balance sheet, depending on structure.
  • Lower monthly payments: Since the lessee doesn’t finance the full cost of the equipment and the lessor claims the depreciation, payments are typically lower than capital leases.
  • End-of-term flexibility: Lessee can return the equipment to the lessor, renew the lease, or purchase the equipment at its fair market value. Allows flexibility to manage technology obsolescence by returning equipment and upgrading to the newest model.
• Uncommitted Equipment Guidance Line (UGL)
  • Flexible access to capital: Provides a preapproved structure for recurring equipment purchases without requiring a new credit approval each time.
  • Progress funding: Allows staged draws over time, aligning funding with equipment delivery or project milestones.
  • Custom structuring: Terms can be tailored to each schedule funding, including amortization style (e.g., mortgage or equal principal), rate type, and maturity.

Additionally, tax-exempt leases or bond structures are available for qualified 501(c)(3) organizations. These vehicles provide access to a lower cost of capital and a larger pool of investors. Tax-exempt financing provides flexibility in how the funds are used and can help improve cash flow by spreading out payments over an extended period.

A strategic step forward

For many health systems and hospitals, simply managing the details of leases and loans on equipment — including equipment schedules, source providers, lease terms, replacement schedules, invoice payment and tracking, and more — is difficult. At the same time, outpatient service providers struggle to keep pace with technology advancements and managing their pace of growth. For both, implementing a strategic plan for equipment financing can feel daunting.  

Key’s healthcare equipment financing experts can tailor a custom equipment financing plan that provides flexibility, cash preservation, and diversified revenue streams, while helping to mitigate the challenges that can stifle an organization’s growth and profitability.

For more information, contact an expert:

Kathy Havlik, Regional Sales Director, Key Equipment Finance, KeyBank
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Yulia Murphy, Senior Relationship Manager, Commercial Healthcare, KeyBank
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