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Although leasing does not have the best reputation with private individuals, companies in particular should think twice before choosing between leasing and external financing of capital goods:
What is leasing?
Basically, leasing is perceived as being closer to renting than to traditional credit financing. For example, a leasing company provides vehicles, machinery or IT infrastructure in return for monthly payments. The leased equipment remains in the ownership of the leasing company. In most cases, however, the equipment can be purchased at a pre-determined price at the end of the contract period.
Advantages of leasing
Leasing has various advantages over conventional financing. For young companies that do not have sufficient equity capital but have a high return potential, leasing can be a good solution. In addition, leasing avoids the need to use foreign capital and also preserves liquidity. The latter can be used for other purposes. It is also important to know that, unlike the monthly repayments on loans, the monthly leasing payments can be fully deducted from taxes.
Finally, leased equipment can be replaced at the end of the contract period. This keeps companies dynamic and flexible. This is particularly advantageous in areas of rapid technological progress, such as electric mobility, IT equipment or digital machines. Leasing enables the company to react more quickly to customer requirements and sectoral changes.
Disadvantages of leasing
It is known that leasing is not cheap and, in direct comparison, it is usually more expensive than financing with borrowed funds. Due to the rather short amortisation period, high administrative costs and refinancing costs, leasing rates are rather high. In addition, it goes without saying that the leasing company also wants to make a profit. Therefore, it charges additional risk and profit premiums. All these costs result in a reduction in the company's current income.
Conclusion
In conclusion, it can be said that leasing is a better financing solution for some companies. Especially young and dynamic companies can benefit from the many advantages of leasing.
