That $150,000 MRI machine could either accelerate your practice’s growth or drain cash you desperately need elsewhere—and the lease versus buy decision often determines which outcome you get. Yet most medical practice owners make this choice based on monthly payment alone, missing the bigger financial picture entirely.
This guide walks through the capital budgeting framework for medical equipment decisions, covering lease types, tax implications, calculation methods, and how to match your choice to your practice’s stage and goals—with the same kind of rigor you’d expect from a Fractional CFO Services for Healthcare Organizations.
What is capital budgeting for medical equipment
When you’re facing a decision about expensive medical equipment—whether it’s an MRI machine, surgical laser, or diagnostic device—the choice between leasing and buying comes down to a few key factors: upfront costs, cash flow impact, how quickly the technology becomes outdated, and long-term value. Leasing typically offers more financial flexibility and makes upgrading easier, which matters a lot for equipment that evolves quickly. Buying, on the other hand, gives you ownership, the freedom to customize, and often costs less over the full life of the equipment if your cash flow can handle it.
Capital budgeting is simply the process of evaluating major equipment investments to figure out which option creates the most value for your practice. Think of it as a structured way to compare your choices rather than going with your gut or defaulting to whatever the equipment vendor suggests.
For medical practices, this framework becomes especially important because the equipment you’re considering often costs tens or hundreds of thousands of dollars. A wrong decision here can tie up cash you need elsewhere or leave you stuck with outdated technology.
Understanding healthcare equipment leasing and buying options
Medical equipment leasing defined
Leasing means you pay for the right to use equipment over a set period without actually owning it. Your practice (the lessee) makes regular payments to a leasing company (the lessor), and when the term ends, the equipment typically goes back to the lessor. Some leases include an option to purchase the equipment at that point, but ownership isn’t automatic.
If you want a deeper walkthrough of contract structures and decision factors, see our guide on medical equipment lease vs buy for healthcare operators.
Medical equipment financing and purchasing defined
Buying means you acquire full ownership of the equipment. You can pay cash upfront, or you can use an equipment loan to spread payments over time. Either way, once you’ve satisfied the payment obligation, the equipment belongs to your practice outright. Financing is just borrowing to purchase—the end result is still ownership.
Key terms in equipment lease agreements
Before you start comparing lease options, it helps to know the vocabulary:
- Residual value: The estimated worth of the equipment when the lease ends
- Fair market value (FMV): The current market price, often used to calculate buyout options
- Lease term: How long the agreement lasts, typically anywhere from two to seven years
- Buyout option: Your right to purchase the equipment when the lease expires
Types of medical equipment leases
Operating leases
Operating leases are shorter-term arrangements where the leasing company keeps ownership. When the term ends, the equipment goes back to them. These leases often stay off your balance sheet, which can look better to lenders reviewing your debt ratios. They work particularly well for equipment that becomes obsolete quickly—you use it for a few years, then swap it for something newer.
Finance leases
Finance leases work more like ownership in disguise. Your practice takes on the risks and rewards of owning the equipment, and the lease shows up on your balance sheet as both an asset and a liability. These arrangements often include what’s called a bargain purchase option, letting you buy the equipment for a small amount when the lease ends. If you’re pretty sure you’ll want to keep the equipment long-term, a finance lease might make sense.
Pros and cons of leasing medical equipment
Advantages of healthcare equipment leasing
- Lower upfront capital requirements: You preserve cash for operations, hiring, or other investments
- Predictable monthly payments: Budgeting becomes more straightforward when you know exactly what you’ll pay each month
- Technology upgrade flexibility: When the lease ends, you can swap outdated equipment for newer models without selling or disposing of the old one
- Potential off-balance-sheet treatment: Operating leases may not show up as debt, which can help your financial ratios
- Bundled maintenance options: Some leases include service agreements, reducing surprise repair costs
Disadvantages of medical equipment leases
- Higher total cost over time: When you add up all the payments, leasing often costs more than buying
- No ownership or equity: Your payments don’t build any asset value for the practice
- Contractual restrictions: Early termination penalties and usage limits can box you in
- Ongoing payment obligation: You keep paying even if the equipment sits unused
Pros and cons of buying medical equipment
Advantages of purchasing medical equipment
- Full ownership and equity: The equipment becomes a practice asset that adds to your net worth
- No ongoing payments after payoff: Once you’ve paid it off, you only cover maintenance
- Freedom to modify or sell: No restrictions on how you use the equipment or what you do with it later
- Potential lower total cost: Over the equipment’s full useful life, ownership often costs less
Disadvantages of buying medical equipment
- Large upfront capital outlay: You’ll tie up significant cash or take on debt
- Depreciation risk: Equipment loses value over time, especially technology-heavy devices
- Obsolescence exposure: If the technology advances quickly, you’re stuck with outdated equipment
- Maintenance responsibility: All repair and service costs fall on you
Financial comparison of leasing vs buying medical equipment
| Factor | Leasing | Buying |
|---|---|---|
| Upfront costs | Minimal (first/last month, deposit) | Full payment or loan down payment |
| Monthly cash flow | Predictable lease payments | Loan payments or none if paid cash |
| Ownership outcome | No equity built | Full ownership |
| Maintenance | Often included | Practice responsibility |
| Technology upgrades | Easy at lease end | Requires selling or disposing |
| Balance sheet impact | May stay off balance sheet | Asset and potential liability |
Upfront costs and cash requirements
Leasing typically requires minimal money upfront—often just the first and last month’s payment plus a security deposit. Buying requires either full payment or a substantial down payment on an equipment loan. That difference can matter a lot if you’re watching your working capital closely.
If cash is tight, improving collections can widen your decision options—especially when equipment payments compete with payroll and overhead. Here’s a related resource on reducing days in A/R for medical practices to strengthen healthcare cash flow.
Monthly cash flow impact
Lease payments stay consistent and predictable throughout the term. If you finance a purchase, your loan payments might look similar to lease payments, but eventually you’ll own the equipment free and clear. Paying cash eliminates monthly payments entirely, though it reduces the capital you have available for other uses.
Depreciation and asset value
When you buy equipment, it depreciates on your books over time. That affects your balance sheet strength and how lenders view your debt-to-asset ratios. Leased equipment (in operating leases) doesn’t show up as an asset, so it won’t contribute to your practice’s net worth—but it also won’t depreciate.
Maintenance and repair responsibilities
Many lease agreements include maintenance, which reduces unexpected costs. When you own equipment, you’re responsible for all repairs, service contracts, and eventual disposal. That’s worth factoring into your total cost calculations.
Tax implications for medical equipment leases and purchases
Section 179 deductions for purchased equipment
When you buy equipment, it may qualify for Section 179, which allows practices to deduct the full purchase price in the year of acquisition rather than spreading the deduction over several years through depreciation. This can create significant tax savings upfront.
Lease payment tax deductions
Lease payments are typically deductible as operating expenses in the period you pay them. This spreads your tax benefit evenly throughout the lease term rather than front-loading it in year one.
Depreciation benefits for owned equipment
Standard depreciation schedules (called MACRS) spread tax benefits across multiple years for owned equipment. Bonus depreciation options may allow faster deductions, though these provisions change as tax laws get updated.
Tip: Tax implications vary significantly based on your practice’s structure, income level, and current situation. The right choice for one practice might be wrong for another, so it’s worth modeling both scenarios with actual numbers.
How to calculate whether to lease or buy medical equipment
Net present value comparison method
Net present value (NPV) compares the present value of all cash outflows—payments, tax effects, and maintenance—for each option. The option with the lower NPV total cost is financially better. This method accounts for the time value of money, recognizing that a dollar today is worth more than a dollar five years from now.
Break-even analysis for equipment decisions
Break-even analysis identifies the point where leasing costs exceed buying costs. If you expect to use the equipment beyond that break-even point, buying often makes more financial sense. If you’ll likely upgrade before reaching it, leasing may be the smarter choice.
Total cost of ownership calculation
Total cost of ownership adds up everything over the expected use period: purchase price or total lease payments, financing costs, maintenance, insurance, and disposal or return costs. This comprehensive view often reveals that the option with the lower monthly payment isn’t always the most economical choice when you look at the full picture.
How to choose based on your practice stage
New and startup medical practices
For newer practices, leasing often makes sense because it preserves limited capital. Qualification barriers tend to be lower since the equipment itself serves as collateral. Leasing also lets you test patient volume and revenue before committing to major purchases.
Growing practices expanding services
A hybrid approach works well here. You might lease technology-heavy equipment that evolves quickly while buying equipment with long useful lives that supports your core services. This balances flexibility with building practice equity over time.
Established practices replacing equipment
Stronger cash positions and credit profiles open more options. Buying makes sense when you’ll use equipment for its full useful life. Leasing remains attractive when technology changes rapidly or when you want to preserve capital for other strategic investments.
How equipment decisions impact medical practice valuation
Owned equipment adds to your practice’s asset value, while lease obligations may be viewed as liabilities by potential buyers or valuators. Equipment age, condition, and remaining useful life all factor into how acquirers assess what your practice is worth.
If you’re planning an exit within the next several years, consider how current equipment decisions will look to potential buyers. A practice with well-maintained, owned equipment may command a higher multiple than one with aging leased equipment nearing term end.
Work with a financial partner on your medical equipment capital budget
The lease versus buy decision connects to broader financial strategy: cash flow management, tax planning, growth trajectory, and exit readiness. These decisions don’t exist in isolation—they affect your practice’s financial health for years.
A partner providing fractional CFO services can model scenarios, stress-test assumptions, and align equipment decisions with your overall practice goals. Rather than making these decisions based on monthly payment alone, you can evaluate how each option affects your path to growth and eventual exit.
Talk to a Bennett Financials advisor about building a capital budgeting framework backed by outsourced CFO leadership that supports your practice’s long-term vision.
