Purchasing medical equipment through asset finance lets you acquire the devices your practice needs while preserving capital for other areas of your business.
Whether you're establishing a new practice or upgrading existing equipment, the upfront cost of medical devices can strain your working capital. A chattel mortgage or finance lease allows you to spread the cost over time while using the equipment to generate income immediately. The decision between financing and paying cash outright affects not just your cashflow but also your tax position and ability to keep pace with advancing technology.
How Asset Finance Works for Medical Equipment
Asset finance uses the equipment itself as collateral, which means the device you're purchasing secures the loan. You select the medical equipment you need, apply for asset finance with the purchase price as the loan amount, and once approved, the lender pays the supplier directly. You then make fixed monthly repayments over an agreed term, typically between one and seven years depending on the equipment's expected lifespan.
The interest rate and repayment structure depend on your business financials, the type of equipment, and whether you're purchasing new or used devices. Because the equipment acts as security, lenders often view medical equipment finance more favourably than unsecured business loans, particularly when the devices retain their value over time.
Tax Benefits and Depreciation on Medical Devices
One of the strongest advantages of financing medical equipment is the ability to claim tax deductions throughout the life of the lease. Under a chattel mortgage, you can claim depreciation on the equipment and deduct the interest portion of your repayments. If you structure the purchase as a finance lease, your entire lease payment may be tax deductible as an operating expense, though you won't own the equipment outright until the end of the term.
Consider a physiotherapist purchasing a $45,000 shockwave therapy device through a chattel mortgage over five years. She claims depreciation on the device each year and deducts the interest on her repayments, reducing her taxable income while the equipment generates revenue from day one. At the end of the term, she owns the device outright and can continue using it or trade it in for an upgraded model. The tax benefits effectively reduce the real cost of the equipment compared to purchasing it outright from post-tax income.
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Preserving Working Capital for Practice Growth
Paying cash for a $100,000 CT scanner empties your working capital account in one transaction. Financing the same device means that capital remains available for hiring staff, covering operational costs during slower months, or responding to unexpected expenses. For medical practices where cashflow can fluctuate with seasonal patient volumes or billing cycles, preserving working capital provides a buffer that keeps the business stable.
The fixed monthly repayments also make budgeting more predictable. You know exactly what you'll pay each month, which helps with financial planning and removes the uncertainty of variable costs. This structure works particularly well when the equipment you're financing generates consistent revenue that covers the repayment amount.
The Downsides: Interest Costs and Commitment
Financing medical equipment means you pay interest over the life of the lease, which increases the total cost compared to a cash purchase. A $60,000 dental scanner financed over five years at a typical interest rate might cost you an additional $12,000 to $15,000 in interest, depending on the rate and structure. You need to weigh that cost against the tax benefits and the value of preserving your capital.
You're also committed to the repayment schedule regardless of how your business performs. If patient numbers drop or the equipment doesn't generate the revenue you anticipated, you still owe the full amount. Breaking the contract early usually involves penalties or paying out the remaining balance, which can be costly if circumstances change.
Technology Upgrades and Equipment Obsolescence
Medical technology advances rapidly, and a device that's cutting-edge today might be outdated in five years. If you finance equipment over a seven-year term, you could find yourself making payments on equipment that's no longer competitive while your colleagues have moved to newer models. An operating lease can address this by allowing you to return the equipment at the end of the term and upgrade to the latest version, though you won't own the device and your repayments effectively become an ongoing cost.
In our experience, practices that finance diagnostic imaging equipment or surgical devices need to consider the upgrade cycle carefully. If the equipment has a long useful life and won't become obsolete quickly, ownership through a chattel mortgage or hire purchase makes sense. If the technology evolves rapidly, a shorter lease term or operating lease structure might serve you better, even if the ongoing cost is higher.
When Asset Finance Makes Sense for Your Practice
Asset finance works well when the equipment you're purchasing will generate revenue that covers or exceeds the repayment amount, when preserving working capital matters more than minimising total cost, and when the tax benefits meaningfully reduce your overall expense. It's less suitable when you have surplus cash earning minimal return, when the equipment has a short useful life, or when you prefer to own assets outright without ongoing commitments.
The structure you choose matters as much as the decision to finance. A chattel mortgage suits practices that want ownership and maximum tax deductions. A finance lease works when you want flexibility at the end of the term. An operating lease makes sense when you prioritise upgrading regularly over ownership. Each option involves different GST treatment and end-of-term outcomes, so matching the structure to your situation is worth getting right.
If you're weighing up whether to finance medical equipment or considering which structure fits your practice, we can walk through the options with you based on your current financial position and business goals. Call one of our team or book an appointment at a time that works for you.
Frequently Asked Questions
What types of medical equipment can I finance through asset finance?
You can finance most medical devices including ultrasound machines, MRI and CT scanners, dental equipment, surgical devices, diagnostic tools, and practice furniture. The equipment acts as collateral for the loan, and lenders typically finance both new and used medical devices depending on their condition and value.
What are the tax benefits of financing medical equipment?
Under a chattel mortgage, you can claim depreciation on the equipment and deduct the interest portion of your repayments. With a finance lease, your entire lease payment may be tax deductible as an operating expense. These deductions reduce your taxable income while the equipment generates revenue from the start.
Should I use a chattel mortgage or a finance lease for medical equipment?
A chattel mortgage suits practices wanting ownership and maximum tax deductions through depreciation. A finance lease offers flexibility to upgrade or return equipment at the end of the term, with lease payments potentially fully tax deductible. The right choice depends on whether you prioritise ownership or flexibility in your upgrade cycle.
How does asset finance help preserve working capital?
Asset finance spreads the cost of equipment over time through fixed monthly repayments, leaving your working capital available for other business needs like staffing, operational costs, or unexpected expenses. This is particularly valuable for medical practices where cashflow can fluctuate with patient volumes or billing cycles.
What happens if I need to upgrade my medical equipment before the finance term ends?
Breaking the contract early usually involves penalties or paying out the remaining balance. An operating lease allows you to return equipment at the end of the term and upgrade without ownership, though this becomes an ongoing cost. Matching your lease term to the equipment's expected useful life helps avoid being locked into outdated technology.
