We’ve all heard that the rates available for the finance of Medical Equipment and other assets varies with each bank’s cost of funds. The mix includes the rates paid for deposits locally, the rates paid to other banks locally, and the rates applicable to the international market. The Feds have been sitting on a proposal that the banks make their cost of funds transparent, but after many months of inaction, it appears that nothing will come of it.
So, I’ve started tracking the weekly movement of four rates, and after about three months of data collection, I can report a slight downtrend in all but the 90-day swap rate. The other three are the 5-year swap rate, the 3-year term deposit rate, and the 5-year term deposit rate. I’ll publish the graphs periodically.
One of my ongoing challenges as a Medical Equipment Finance Broker is convincing the banks that the Healthcare Industry deserves their very best rates, because the risk of default is next to zero. It’s sad to report that the only two lenders who recognise Healthcare’s low risk are now being forced into using their parent companies’ credit policies, which is pretty much ‘one size fits all’.
The only differential the banks seem to use in determining who gets the best deals is size. According to the RBA, the cost of finance for small businesses is almost 2% more than the finance provided to big business. Furthermore, the terms and conditions are still bordering on the extreme for small businesses with the banks using every means to mitigate their risk, including personal guarantees (family homes are on the line), fixed and floating charges, and more.
But, it just doesn’t make sense to treat private medical practices like any other small business, particularly in view of:
• the principals, who as medical practitioners and specialists, are among the most highly intelligent, motivated, and affluent of all borrowers;
• the business, which is recession-proof; and
• the cash flow, claims for which the federal government pays in most cases on a next-day basis.
With all the talk about risk-rated interest rates, you’d think that at least one of the banks would wake up to the opportunity that is the entire private Healthcare Industry.
Finance for assets such as Medical Equipment is available in several forms, called facilities. ‘Lease’ is the term used most often, but Finance Leases and Operating Leases are not as popular in the Australian Healthcare Industry as Commercial Hire Purchase and Chattel Mortgage facilities.
Finance Leases are familiar to many as a method of buying a car. Fixed payments are made over a period of time, and at the end of the term, the payment of a ‘balloon’ (a predetermined residual value) concludes the contract and title to the asset is transferred.
Operating Leases are essentially long term rentals where the lender accepts the residual risk position and retains ownership.
Commercial Hire Purchase, also known as CHP, and Chattel Mortgage, also known as Goods Mortgage, facilities are similar to Finance Leases, but title is transferred at the start, so the tax and accounting aspects are different.
A more detailed comparison of all facilities is available on request.