Healthcare remains a strong market for equipment leasing and finance, according to experts analyzing trends revealed in a recently released survey.
Healthcare was ranked as one of the top five industry segments for growth of new business in 2006, and as other industries struggle through a tougher financial year in 2007, healthcare equipment financing stays the course.
Data from the annual survey of equipment finance by the Equipment Leasing and Finance Association showed that new business volume in healthcare totaled nearly $10 billion in 2006, compared with $8.5 billion in 2005, an increase of 16.6 percent.
In terms of total new business volume, medical equipment represented 7.4 percent of the total market in 2006, down from 7.7 percent of the total market in 2005, according to responses from ELFA members.
"It's just a growing market with lots of activity," said Ralph Petta, vice president of industry services for ELFA. "There are other sectors that may not have such a rosy future, but this isn't one of them."
Overall, new business volume increased 12 percent in 2006 to more than $125 billion, according to the survey, which is based on 141 responses to surveys e-mailed to ELFA members in the first quarter of 2007. Members of the Arlington, Va.-based association include financial services companies and manufacturers engaged in financing the utilization of capital goods.
Equipment leasing is a popular financing approach for large-ticket items, such as diagnostic equipment that may cost millions of dollars; Petta said 30 percent to 50 percent of leasing activity in healthcare involves these types of high-tech equipment.
"These are high-dollar assets that not a lot of providers, hospitals and other organizations can afford to purchase," he said. "They'd rather conserve their cash and use that elsewhere."
Leasing arrangements are typically more flexible than loans or other forms of debt financing, Petta said. That enables leases to be tailored to individual providers' situation, making them popular with healthcare organizations.
Previous healthcare industry-specific research by ELFA estimates that leasing in the sector should grow about 9 percent annually.
"We expect more capital investment in healthcare and more lease investment as more people enter the Baby Boomer era and retire," he said.
Concerns in credit markets, particularly involving subprime mortgages, aren't affecting the leasing industry, said Kenneth E. Bentsen Jr., the association's president.
"While there's clear evidence of tightening in the credit market overall, the equipment finance sector has seen strong credit quality and management," Bentsen said. "Our figures report on average 0.6 percent chargeoffs as a percentage of full year net receivables balance. In addition, credit standards in the equipment finance sector have not seen the deterioration other sectors have."