Providers must develop relationships with banks and equipment financing companies to stay competitive
by Kurt Schmitz
October 22, 2014

The accessibility market is evolving in every way, and it is important to remain flexible when faced with changes. Finding the right combination to fund your company in an effort to become more financially flexible is more important now than it has ever been in the past. The cost of equipment for inventory is much higher per unit than is traditional HME. Developing relationships with a bank and an equipment financing company are keys to becoming more flexible. Some businesses have an established bank relationship or use an equipment financing company on a consistent basis. In today’s environment, it is important to use a combination of the two in order to capitalize on the financial flexibility that will ensure growth for your business.

Don’t Wait

Establishing a line of credit with a bank allows you to cover any shortfalls you may experience in your cash flow. The best time to establish a bank line of credit is before you need it—you want to be prepared for potential shortfalls in your cash flow, so establish a bank line sooner rather than later. Within the industry, there are many reasons cash flow issues may arise. They can vary from losing a contract to delayed reimbursement payments and agency funding cuts; they can even occur during times of growth. All too often we see a company waiting until its cash flow is weak before it attempts to establish a bank line or a lease line of credit through an equipment financing company. Establishing these financial solutions in advance can help your company maintain a consistent cash flow. Financing or leasing your capital equipment can reduce large cash outlays and allow your business to pay for it over time.

Put the Money to Work

Once you establish the bank and lease line of credit, you need to use them to your advantage and get the most out of them. Structuring your equipment lease to match the reimbursement period allows the equipment to work for you by not paying for it up front at the time you order. A good example of this would be the financing of inventory over 36 months. By doing so, you lock in a fixed monthly payment that allows you to preserve the cash you have in the bank or free it up for other short-term needs. Paying for your equipment as you use it helps generate income for you. This concept also applies to your bank line of credit. If you have products that are strictly cash sales, such as canes or toilets you would utilize your cash on hand or bank line. Extended lease terms on retail products may solve a short-term problem but may cause other issues down the road. It’s important to look at all your equipment and decide if it’s a long-term asset that generates revenue on a monthly basis or a cash-and-carry product. Another way to look at your equipment is as if it were your employees. Do you pay your employees an annual salary each January, or do you spread equal payments across 12 months? This concept is not new to business owners, but it can be difficult to grasp when you are constantly juggling multiple tasks during the day.

Other Considerations

Another advantage to having a bank and lease line of credit is increased purchasing power. If you experience growing pains when you land a new contract, or your marketing strategy proved to work and your business is greatly expanding, you will need money to fund your company’s growth. The industry is also seeing that some of the latest innovations for accessibility products are a little more expensive and require a larger cash outlay. If your company does not have the necessary cash in the bank for such an outlay, your bank line can help pay for disposable products or retail products and the lease line will cover any equipment purchases you make. The last thing you need is to not be able to purchase equipment necessary to service a contract or your client base. Another thing to keep in mind is the potential “opportunity cost” by not having the funds available. Opportunity cost is the loss of potential gain from the best alternative to any choice. If you spend your cash on equipment purchases instead of using leasing, or if you fail to have a bank line in place, it could cost you the chance to pursue that big contract or the opportunity to add another location. Part of remaining flexible is the ability to move in different directions based on the obstacles placed in front of you.

Financial flexibility also affords you the ability to take advantage of opportunities such as offering niche products or expanding geographically via acquisitions. All of these opportunities also require money, and bank or lease lines provide you the ability to move forward.

Plan Wisely

Just having the funding sources available doesn’t guarantee success. You must analyze your business and make sure you are getting the most out of your cash, bank and lease line of credit. Whether you’re looking to grow your business or want to avoid running into cash flow problems because of the aforementioned issues, you can utilize the cash you saved by leasing or the bank line you established to help carry you through. A bank line or lease might cost you a bit more in interest, but they are a strong combination if you are looking for financial flexibility in a market that is ever changing.

Provide Customer Options

Now that a plan is developed for your purchase or equipment financing, determining a plan to help your client afford the equipment is crucial. The easy answer is having a client who can afford to pay for the equipment as it is needed. Beyond the easy answer, success will be derived from complete package solutions. The information that you gathered in the evaluation and assessment stages will be of great value as you provide solutions. Understanding some basic elements—such as if the client owns a home, has family who can assist, is a part of a fraternal group, nonprofit organization, church, etc. or has a diagnosis attached to a known disease—is important. If the client owns a home, a re-finance or home-improvement loan may be a solution possible with assistance from family members. Additionally, having rental or lease programs that allow your client to pay for equipment over time may be just the thing needed to take care of their need. There are also many nonprofit groups and associations that may offer assistance to those with a specific disease. Churches and nonprofit organizations often have resources for individuals who are a member of the group or church congregation. Beyond these options, communities may have resources available for those in need. Success in this marketplace may fall outside of the normal flow of cash in your current business model, but having a plan in place before it’s necessary to implement it will optimize your opportunity for growth in this particular area of the HME industry.

This article is part of a 12-month home accessibility series. Each segment will focus on a particular aging-in-place need to provide the insight and resources necessary to be successful in this growing market.