Financing through leasing

Even though leasing has a less than stellar reputation among individuals, businesses in particular should think twice whether capital goods should be leased or externally financed:

What is Leasing?

The basic idea of leasing is closer to renting than to traditional financing through a loan. A leasing company, for example, provides vehicles, machines, or IT infrastructure for a monthly fee. However, the assets remain the property of the leasing company. In most cases, the assets can, however, be purchased at the end of the contract period at a price determined in advance.

Benefits of Leasing

Leasing has several advantages over classic financing. It is often suitable for young companies that do not have the necessary capital but show great potential for earnings. Furthermore, leasing preserves debt capital and liquid funds. This way, liquid funds can be utilized elsewhere. Additionally, unlike loan repayments, leasing payments can be fully deducted from taxes.

Besides, after the end of the contract period, the assets can be replaced. This keeps companies dynamic and flexible. Especially in areas with rapid technological progress such as e-mobility, IT equipment, or digitized machinery, this is advantageous. It allows a company to respond more quickly to customer requirements and industry changes.

Disadvantages of Leasing

Of course, leasing also has disadvantages. Leasing is not cheap and is usually more expensive compared to financing through external capital. Due to the relatively short amortization period, administrative costs and high refinancing costs, leasing rates are rather high. Furthermore, the leasing company also wants to make a profit, which is why additional risk and profit surcharges are applied. Thus, reducing the ongoing revenues of one's own company.  

Conclusion

In conclusion, however, it can be stated that leasing offers a better solution for some companies in financing capital goods. Especially young, dynamic companies can benefit from the many advantages of leasing.

• Further information
   
• Calculate an offer for fiduciary accounting