What is leasing?

How leasing works

Leasing is a type of financing where you can use company assets without buying them yourself. You enter into an agreement with a leasing company. The leasing company finances the asset and gives it to you via lease. You pay a monthly amount for its use

The best-known forms of leasing are financial lease and operational lease,

Financial lease

With a financial lease, the leasing company finances the purchase value, or part of it. You pay back the financing in instalments. The leasing company may ask for a down payment at the beginning of the lease period. Or you pay an amount at the end of the lease (final instalment). The lease company remains the legal owner until you have paid the final instalment.

You are the economic owner of the asset and can write it off immediately. For many assets, you are eligible for the small projects investment credit. Financial lease is a debt on your balance sheet. You maintain the asset yourself and bear the economic risk. 

Operational lease

With an operational lease, you can assume 100% financing. The lease company remains the legal and economic owner of the asset. It is as if you are renting the object. You repay the financing in monthly instalments

You record the lease instalments as expenses. You cannot depreciate them or get an investment allowance. The leased object is not on your balance sheet and does not affect your company's financial ratios. However, the lease payments are recognised in the income statement as part of operating expenses. Operating income is reduced by the same amount.

At the end of the lease period, the leasing company takes the object back. Or you take over the object for its current market value or a set price.

What do you use leasing for?

Leasing is useful for financing company assets such as company cars, machines, computers, or photocopiers. Leasing allows you to use these assets without buying them.

What does leasing cost?

The cost of leasing consists of the monthly lease payments. This is the amount you pay monthly for the asset. With financial leasing, you are the economic owner and can depreciate the asset. With operational leasing, you are a lessee of the asset and enter the lease instalments as expenses.

How do you apply for a lease?

You apply for a lease contract with special leasing companies, banks, or other financiers who have leasing in their package. You usually apply online. Before you submit an application, check what information the financier wants from you. For example, company details and financial statements. To apply, follow these steps:

• Decide what you need: consider what type of equipment or vehicle you want to lease and for how long. And how much money you want to put in yourself.
• Compare providers: find different leasing companies or other providers and compare their terms, costs, and additional services.
• Get quotes: contact providers and request price quotations. This will help you get an idea of the costs and conditions in your situation.
• Assess the price quotations: compare the quotations based on price, conditions, flexibility, and service.
• Choose a provider: make a choice based on your assessment.
• Submit your application: complete the (online) forms and provide the requested documents from the provider you have chosen.
• Sign the contract: read the contract carefully. Ask questions if anything is unclear and sign the contract if you agree.

Tip: compare different providers before making your choice. Pay attention to the conditions. Especially look at what happens at the end of the lease contract and if you want to repay earlier.

Because you have fixed monthly costs for leasing, you can easily include these expenses in your financial planning. Over the entire term of the lease contract, leasing an asset can be more expensive than buying. Leasing can be more advantageous than a business loan.

Duration and flexibility

The duration of a lease contract is tailored to the economic lifetime of the asset. Does the object have a longer economic life? Then the leasing company usually agrees to a longer term. You can use leasing on top of or alongside other sources of financing.

Read the leasing contract carefully. What happens if, for example, you can no longer pay the monthly lease instalments? Or if you want to let the contract expire earlier? The terms and conditions will tell you if and how much compensation you will have to pay.

Who is leasing for?

Leasing is suitable for companies that need business assets but do not want to buy them. It is especially useful for businesses that want to preserve their working capital and cannot OR do not want TO make a large investment all at once.

Help with business financing

KVK’s Financing Guide helps you find the financing that suits your situation. Do you still have questions? Call the KVK Advice Team on 088 585 11 11 or ask an expert.