Leasing as an alternative form of financing for companies

Leasing is becoming increasingly important for companies. The need to replace outdated equipment, develop new business areas or remain competitive are just some of the reasons why companies invest in modern technology. However, the required investments can be very high. In this respect, leasing offers German and multinational companies an attractive alternative to loans for financing their investment projects. But what exactly is leasing, what opportunities does it offer, and how can it be successfully used by companies in different industries and of different sizes?

What is leasing?

Leasing is a form of financing in which companies use (rent) capital goods such as machinery, vehicles or IT equipment without having to purchase them outright. In other words, it is a contract for a movable or immovable object that is provided to the lessee for use in return for a monthly lease payment. This could be a vehicle, but also a solar energy system. The basic idea behind the transfer of use of the asset is that the leasing instalments represent deductible operating expenses and do not burden the company's balance sheet. This allows a company to post high leasing instalments within a short period of time and thus significantly reduce its profit. At the same time, leasing offers the opportunity to operate independently of the statutory depreciation period (in German: 'AfA').

In addition to leasing, hire purchase is another interesting form of financing for companies. This is a mixture of a purchase and rental contract for consumer goods. After a fixed term has expired and the last instalment has been paid, ownership of the object is transferred in full to the hire purchaser. Leasing and hire purchase can be attractive alternatives to purchasing for SMEs, because both forms of financing conserve equity and increase liquidity. In some cases, state subsidies linked to the acquisition of ownership can be claimed for hire purchase.

Significance for companies of all sizes and industries

Leasing plays a central role in corporate financing and offers significant advantages for companies of all sizes and from different industries, in particular e-mobility, combined heat and power plants, photovoltaics, energy management, water treatment, logistics, robotics, etc. Startups and small companies benefit particularly from leasing because it enables them to make necessary investments without overburdening their limited capital. They can also afford new technologies without entering into long-term financial commitments.

For small and medium-sized enterprises (SMEs), leasing is an attractive option that does not have a significant impact on liquidity. Fixed leasing instalments make financial planning easier. In addition, leasing enables SMEs to maintain their competitiveness by accessing the latest technology. Large companies and corporations can also use leasing as a strategic financing tool to respond flexibly to market changes.

The main advantages of leasing at a glance

• Use of tax advantages: Leasing instalments are deductible business expenses, thus reducing profit and lowering the tax burden.

• Preservation of equity: The ‘pay-as-you-earn’ principle means that leasing instalments are financed from the income generated by the investment object.

• Maintaining credit lines and improving liquidity: debt financing without debt capital preserves liquidity, leaves existing credit lines untouched and expands entrepreneurial leeway.

• Improvement of balance sheet and rating: Leasing objects and liabilities from leasing contracts are treated as off-balance sheet items, which has a positive effect on financial key figures.

• Optimisation of time and costs: All services related to the investment object can be outsourced – from maintenance to insurance to full service.

• Predictable, fixed instalments: Leasing instalments can be reliably calculated over the entire term. Interest rate changes have no effect.

Examples of innovative and flexible leasing options

Leasing in e-mobility

The breakthrough of e-mobility is inevitable. By incorporating funding measures into leasing and hire purchase, companies can implement comprehensive mobility concepts. Since legal requirements and funding opportunities are constantly changing, it is essential to monitor the market closely. Individual leasing models enable flexible solutions – from pure rental to full-service concepts. Leasing is an attractive option for e-mobility in particular, as it allows companies to benefit from government funding and use sustainable vehicles without high initial investments.

Leasing a combined heat and power plant

The advantages of a combined heat and power plant (CHP) for companies are obvious. A company-owned CHP generates heat and electricity from a local plant, reducing costs and achieving a high level of efficiency. By feeding excess energy into the local power grid, operators can also generate income. However, the purchase of a CHP is cost-intensive, which often deters decision-makers from making this investment. However, a leasing financing option allows the investment to be spread across monthly instalments. This reduces the financial outlay to a minimum. Heat and electricity generation is used by the company itself, with surplus energy being fed into the grid, generating income and enabling the leasing instalments to be serviced.

Financing heat storage and heat pumps

An ecologically and economically sustainable electricity and heating concept is based on a self-sufficient supply of renewable energy sources. With leasing offers, companies can finance a complete package of photovoltaics, storage and heat pump and thus implement a sustainable energy solution.

Our offer

As an expert in the field of project financing and funding, as well as a reliable broker of leasing solutions, EurA AG supports companies of all sizes in developing the appropriate financing strategy for their projects. We accompany you from the initial analysis to the successful implementation of your investment plans.

Would you like to learn more about leasing and how you can optimally combine it with other financing instruments such as subsidies? Talk to us. The experts at EurA Venture will be happy to help. We will review your project and work with you to find the right financing solution.

 Text: Max Wegele