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Dental Practice Financing: Leasing vs. Buying

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dentist's office with brand new equipment.
August 14, 2019 | Dental Practices, Equipment Finance
dentist's office with brand new equipment
August 14, 2019 | Dental Practices, Equipment Finance
  • Keywords:
  • leasing

If you’re starting a new practice or working to expand your current practice, you may find yourself seeking to keep your cash expenditures as low as possible to ensure your practice can meet its debt obligations and daily operating costs while you grow your patient base and increase collections.

 

For many dental practices, leasing is a good alternative to financing a purchase with a loan or line of credit. In some cases, leasing may allow you to conserve cash.

 

A lease is a contract that obligates your practice (the lessee) to make periodic payments to the lessor over the span of a lease term. Leasing falls into two major categories: 

 

Equipment leasing, which includes dental equipment, office equipment such as computers and printers, waiting room furniture and more.

 

Real estate leasing, which includes office space and parking lots. Real estate leasing can also include sale and leasebacks, which occur when a company sells real estate and leases it back from the new owner.

 

There are two major types of business leases: 

 

Operating lease, which often allows you to make smaller periodic payments than you would with a term loan. The smaller lease payments are the result of the lease not being paid off by the end of the lease term—that is, not fully amortized. As a result, the leased equipment has a residual value (i.e. the amount you can buy the equipment for) at the end of the lease term. In addition to the option to purchase the equipment at the residual value, the lessee also has the option to renew the lease or they may decide to terminate the lease and return the equipment.

 

An operating lease requires the lessor to service and maintain the equipment. The costs for these services are added to the lease payments. An operating lease also allows the lessee to cancel before the end of the lease term. 

 

Capital lease, which involves periodic payments over the span of the lease, paying the lease off in full by the end of the lease term. Capital leases provide the lessee with tax savings earned on the depreciation expense of the equipment. At the end of the lease term, the lessee owns the equipment or faces a much smaller residual value. Because capital leases are considered equivalent to loans, you’re required to show any capital leases on your practice’s balance sheet.

 

Lease vs. buy analysis

While leasing offers certain advantages over buying, there are trade-offs with either decision. That’s why it’s a good idea to conduct a lease-versus-buy analysis first.

 

With leasing, you get the benefit of smaller payments and flexibility that comes with not owning the equipment for longer than you wish. Buying, however, has advantages that come with ownership. Consider working with a financial professional to evaluate your return on investment by running a discounted cash flow (DCF) analysis. This will help show the expected cash inflows and outflows of either financing decision. 

 

Note: We recommend practice owners consult qualified professional advisers for legal, finance, accounting and tax guidance when considering starting or acquiring a practice.

Read more
This is part 3 of a 4-part series on

For many dental practices, leasing is a good alternative to financing a purchase with a loan or line of credit.

PART 1

Dental Practice Financing: Writing a Business Plan

July 30, 2019 | Dental Practices

Dentist working on business plan with consultant

Writing a business plan is an important early step in planning for a successful dental practice. Whether you’re acquiring an existing…


PART 2

Dental Practice Financing: Estimating Your Capital Needs

August 07, 2019 | Dental Practices, Finance Growth

young dentist going over finances on laptop

Whether you’re opening a new practice, expanding a current practice, or acquiring an existing one, you’ll need to estimate how much money…


PART 4

Dental Practice Financing: Capital Budgeting

August 21, 2019 | Dental Practices, Finance Growth

young dentist working on budget

An important step before raising funding, or capital, for your dental practice is to estimate its capital requirements. Some of the capital…


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Banking products are subject to approval and are provided in the United States by BMO Harris Bank N.A. Member FDIC. BMO Commercial Bank is a trade name used in the United States by BMO Harris Bank N.A. Member FDIC. BMO Sponsor Finance is a brand name used by BMO Financial Corp and its affiliates.

Please note important disclosures for content produced by BMO Capital Markets. BMO Capital Markets Regulatory | BMOCMC Fixed Income Commentary Disclosure  |  BMOCMC FICC Macro Strategy Commentary Disclosure  |  Research Disclosure Statements.

BMO Capital Markets is a trade name used by BMO Financial Group for the wholesale banking businesses of Bank of Montreal, BMO Harris Bank N.A. (member FDIC), Bank of Montreal Europe p.l.c, and Bank of Montreal (China) Co. Ltd, the institutional broker dealer business of BMO Capital Markets Corp. (Member FINRA and SIPC) and the agency broker dealer business of Clearpool Execution Services, LLC (Member FINRA and SIPC) in the U.S., and the institutional broker dealer businesses of BMO Nesbitt Burns Inc. (Member Investment Industry Regulatory Organization of Canada and Member Canadian Investor Protection Fund) in Canada and Asia, Bank of Montreal Europe p.l.c. (authorised and regulated by the Central Bank of Ireland) in Europe and BMO Capital Markets Limited (authorised and regulated by the Financial Conduct Authority) in the UK and Australia.

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