A leasing loan is a way of financing an enterprise that combines the best features of credit and leasing. It is granted by leasing companies for the purchase of machinery, equipment and vehicles. Its amount is influenced by the borrower’s leasing capacity. The minimum duration of an operating lease is usually 2-3 years. Leasing loans are granted for a period of 6 months to even 6-10 years!
What is a leasing loan?
Wondering what will be the most favorable form of financing an enterprise – cash loan or leasing, we can choose the option combining the features of both liabilities, ie a leasing loan. It can be understood as a type of loan granted by a leasing company and not by a bank. The conditions for granting the loan are similar to those for leasing – the client’s leasing capacity is important.
The financing period for a leasing loan can be from 6 to 120 months, while the borrower does not have to be a VAT payer. The maximum amount possible to obtain depends on the creditworthiness and the price of collateral in the form of financed assets. Depending on the offer of the selected lessor, the client’s own contribution may be low or zero.
Leasing and leasing loans – main differences
Leasing is an alternative to a business development loan and a business loan. It consists in transferring to the lessee the right to use goods not owned by him in exchange for monthly fees for the use of these objects. Thus, the value of the leased equipment is repaid.
The leasing contract must last at least two years. Earlier withdrawal of the lease may be financially disadvantageous for the entrepreneur. The assignment of leasing to a third company will avoid losses. Anyone whose lessor agrees can take over the lease from the current user. This enables the contract to be continued on the existing terms, however, by another entity.
Among the many types of leasing, two are most commonly used:
- Operating lease – this is a relatively short-term contract, and the lessee does not become the owner of the item and is not required to depreciate it. Its cost includes leasing installments, initial payment, expenses related to the use of the item and insurance.
- Financial leasing – it lasts about 5-7 years. The lessee may become the owner of the object from the entry into force of the contract or take over / purchase the leased object free of charge after the contract has expired. The cost includes depreciation, interest portion of the leasing installment, and expenses related to the operation of the item and insurance.
A leasing loan (like leasing) can only be used to finance fixed assets. However, the duration of the contract differs between these two obligations. The minimum operating lease period is from 2 to 3 years. The duration of the leasing loan is determined individually by the lessor and it may reach even 7-10 years.
The loan is granted to the customer for the purchase of the selected fixed asset, with the borrower becoming the owner of the equipment purchased. Like a bank loan, a leasing loan reduces a company’s credit score, while leasing has no effect on it. In addition, VAT is not added to the loan installments, and leasing treated as a service is charged with this tax.
Leasing loan – what to take it for and who will benefit it?
A leasing loan can finance only fixed assets, not current expenses and investments. Fixed assets are used for the needs of business operations, tangible assets owned by the entrepreneur. Their value usually exceeds USD 10,000, and the period of use can be longer than a year.
Although on different terms the loan can finance the same as leasing, incl.
- cars and vans,
- machinery and equipment necessary for operating a business (eg agricultural machinery),
- agricultural, medical and IT equipment,
Leasing companies are more willing to grant loans for the purchase of fixed assets produced by reputable producers and from reliable suppliers. Due to the fact that the loan is not treated as a service, it can be included in the cost of doing business and does not have to be subject to value added tax. Therefore, it is a better solution than leasing when buying used vehicles from individual sellers.
Who can apply for a leasing loan?
With a leasing loan, VAT is included in the monthly installment (and not payable in advance as in leasing) and charged only on the value of your equipment. That is why this solution is often chosen by:
- representatives of professions exempt from VAT,
- entrepreneurs and farmers (also persons providing services without business activities),
- companies applying for subsidies.
The verification of leasing capacity is similar to leasing. It is influenced by positive credit scores and no entries in the debtors’ databases. Loans for lower amounts are often not required to provide documents confirming the financial situation.