Mobile Dental Units: Lease or Debt Financing?

Introduction

The decision to acquire a mobile dental unit is based on a standard capital budgeting analysis. The next step is to determine whether to obtain the use of the mobile dental unit by borrowing and purchasing or by leasing. Financial leases are used extensively in the health care industry. As a financing mechanism, leases are just another way of borrowing money to pay for the asset. Lease payments are fixed obligations equivalent to debt service.

Objectives

To compare lease financing vs. debt financing as vehicles to acquire a mobile dental unit.

Methods

An estimate for a new mobile unit was obtained and lease and loan proposals from financial lenders were collected. A financing rate was chosen for comparison. Cash flows associated with borrowing and buying vs. leasing were determined for two different scenarios: for profit vs. not-for-profit at 5 and 7 years. A dollar-cost analysis was utilized to determine which option had the lower capitalized value.

Results

A new mobile unit fully equipped was quoted at $ 450,000. Cash flow analysis yielded a positive capital value. There was a net advantage to leasing in both for profit and not-for-profit scenarios and both time periods.

Conclusion

Exploring alternative financing vehicles may allow dental programs to expand their services through the acquisition of a mobile unit. Programs generally own assets, but it is the use of the asset which is important rather than the ownership. Dental programs can find leasing an attractive alternative by providing access to capital with cash-flow advantages.