Leasing is a financing solution that continues to score extremely well, perhaps even more so over the past 2 years than ever before.
Our pro experts were interviewed for VOKA Magazine. Matthias Wallaeys (strategic & financial advisor) and Wim Demeester (tax advisor) share their tips & tricks on leasing and dwell on some important issues.
Renting something for a fixed period from a lessor, with an option to purchase at the end: the leasing principle is well enough known. "It remains a convenient way to fully finance investments, whether or not with an initial increased rent. An added bonus is that fewer guarantees are required from the customer ('lessee'), since the 'lessor' remains the owner", Wim Demeester explains.
"If companies are facing a solid investment year, where they need a new building and various machines, for example, the contract is usually about a leasing line, which includes several contracts over a certain period of time. Such an all-in-one solution is more interesting than having to meet with the bank or leasing company separately for each investment," adds Matthias Wallaeys.
Sale and lease back
Companies that own a building and have little cash for other purchases often choose a sale and lease back solution for their real estate. Usually you only do it once. The lessor is usually quick to respond if the property is easily marketable. The main disadvantage is that it is more expensive than traditional loans. In practice, sale & lease back is almost exclusively applied to real estate," says Wim Demeester.
Entrepreneurs often hesitate to lease the product on balance (financial) or off balance (operational). "They usually base their choice on the leasing company's terms and conditions, but broadly speaking it can be said that off-balance is more appropriate for smaller investments (IT, cars, etc.) while on-balance is more suitable for products with a higher value."
"A leasing line is
more interesting than for any
with the lessor to
need to sit together."
- Matthias Wallaeys
That choice also has a significant impact on the solvency ratio and EBITDA (earnings before tax, depreciation and amortization, or profit before interest, taxes, depreciation and amortization). "An on-balance sheet lease is on your assets and the lease debt is therefore on your liabilities. This reduces your solvency. This formula depresses the result through depreciation and therefore does not affect EBITDA." Off balance does affect EBITDA. It becomes lower because of the periodic payments in costs.
"On the other hand, on solvency it has no effect. Because of the higher purchase option (from 15%), the periodic payments are usually lower, so you can keep cash in the company for longer. If necessary, the lessee can opt to continue leasing the asset afterwards, so as not to put pressure on the company's cash position. Operational leasing is popular if the lessee decides in advance not to exercise the purchase option, because the high purchase option means you keep more cash in the company."
"In practice, sale &
lease back almost exclusively
for immovable property
- Wim Demeester
For financial leasing, however, there was an important change in the law in 2020. "Previously, you could still (retroactively) write off an investment made on December 31 for the whole of the past year, but now depreciation only applies from the day the leasing contract actually starts. As a result, entrepreneurs are no longer putting off certain investments until the end of the year, but there is a better spread of leasing contracts." Until the end of this year, the higher percentage for investment deductions that the government granted during the corona crisis still applies. "If that will disappear in 2023, this will probably reduce the attractiveness of on-balance leasing somewhat," concludes Matthias Wallaeys.
(BVC - Photo DD)
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