Everything you would like to know about leasing, but never dared to ask...
Do you have a question about leasing or any other question that we can help you with? Please look at the summary below. Is your question not there? Please feel free to contact us!
Op basis van een financial lease overeenkomst financiert de leasemaatschappij een deel van- of de volledige koopsom, waarbij zij de juridische eigenaar van de apparatuur zijn. Wanneer de lessee het leasecontract regulier heeft uitgediend wordt hij/zij economisch eigenaar van de apparatuur.
On the basis of an operating lease the lessor provides the equipment to the lessee at a periodical payment (rental). The lessor has both legal and economical title to the equipment.
VAT is due on the periodical payment (rental). At the end of the lease agreement you normally have the following options:
This final option, the return of equipment to the lessor, clearly demonstrates the difference with a finance lease.
The purchase option is the price you can buy the assets for from the lessor at the end of an operating lease. If the machine has a useful life of much more than five years, the purchase option price is usually agreed at the start of the lease. This is to prevent surprises at the end of the lease.
The term Fair Market Value is often used in Anglo-American countries to define a purchase option price. At the start of the lease the purchase option price is not agreed but is left to market conditions at end of term. At the end of the lease the lessor may realise a book profit. But a loss cannot be ruled out.
Much depends on how far the lessor amortised the equipment (or the book residual value of the equipment). Much will depend on the market conditions and the negotiation skills of lessor and lessee.
Leasing is targeted at machinery and equipment. For instance a vehicle or a crane. It is sometimes about substantial amounts that make your banker frown. With the leasing the customer/lessee immediately has a repayment plan. The investment is no longer dependent upon the bank. Leasing, as an alternative source of finance for the asset, is often attractive to both the supplier and the customer. It improve the chances of closure of the order.
Many suppliers say: ‘How my customer pays for the machine is not my business. I would rather not be involved.’ In fact we see that customer often appreciate our optional guidance towards finance. The least they can expect from us is a better leasing proposal. It does not require much involvement from you as a supplier. Certainly it is behind the screens that Leasecontrol does what is needed to support your customer.
If you invest in machinery and equipment for an amount between € 2,300 and € 311,243 in 2016 you may be eligible for the small scale investment facility (KIA). (Netherlands only)
The facility is dependent upon the type of asset you invest in. If the asset qualifies you can deduct an amount from your taxable income in accordance with a table. Your corporate or personal income tax is then reduced.
For small and medium size companies an operating lease may be more beneficial than a finance lease. Because the lessor owns the equipment, and you only make use of it, the asset is not capitalized in your balance sheet. As a result the facility remains available.
An often heard argument against leasing is that leasing would be more expensive than a loan from the bank. And indeed if you scan the internet for interest rates on bank loans they are often lower than the implicit rate in a lease. But you have to compare like with like.
Assume you buy a saw bench or a milling machine worth € 300,000.-. For a banker the machine has a security value of 70% or € 210,000.-. Your bank will probably be willing to provide a 5 year loan of some 70% or € 150,000.-. The balance you will have to provide yourself or from your overdraft facility. The interest rate on the overdraft facility may look reasonable but commitment fees and credit commission increase the expense considerably. We have made these calculations in the past on the basis of realistic rates and come to the conclusion that bottomline there is hardly a difference between the price of leasing and the interest on a bankloan.
If we assume that you take the bankloan (€ 150,000.- in the example) and the balance is paid with equity that you want a return of 10% for, the comparison lease versus bank turns even more to the advantage of leasing. That is because half of the necessary cash is virtually borrowed from the shareholders at 10% (as the bank only provides € 150,000.- ). The leverage, that you should benefit from, actually works against you.
If you look at quality there are important arguments for leasing:
Are you dreaming about your new company, or have you perhaps progressed in its development? We can help you with your questions about finance. In addition we cooperate with specialized partners in administrative, fiscal and legal issues. Do feel free to get in touch and discuss your challenges.