Advantages of financial leasing for entrepreneurs
What is financial leasing and how does it work?
Financial lease is a popular financing option for companies looking to lease commercial vehicles without a large initial investment. This type of lease allows you to use a vehicle for a fixed monthly payment, which helps manage cash flow. Unlike buying a vehicle, where you have to pay the full cost upfront, with financial lease costs over a longer period.
With financial leasing, you become the direct economic owner of the vehicle. This means the vehicle appears on your balance sheet, and you are responsible for maintenance and insurance. At the end of the lease period, you are full owner of the company car, which means you do not have to pay a final instalment if you choose to keep the vehicle.
What tax advantages does financial leasing offer entrepreneurs?
Financial lease offers several tax advantages that are attractive to business owners. One key benefit is the investment deduction, which allows you to deduct part of the cost of the vehicle from your taxable profit. This can lead to significant tax savings.
Moreover, the interest paid is tax deductible. This means you can deduct the interest cost from your taxable profit, further reducing your overall tax burden. In addition, you can reclaim VAT on the monthly lease payments, further improving your cash flow.
How is financial lease different from operational lease?
Financial lease and operational lease are both lease options, but they differ in important ways. With financial lease, you are the economic owner of the vehicle, which means the vehicle is on your balance sheet. You are responsible for maintenance and insurance, and you become full owner after the lease period.
With operational leasing, the leasing company retains ownership of the vehicle, meaning it does not appear on your balance sheet. You pay a fixed monthly fee that often covers things like maintenance and insurance. At the end of the lease period, you return the vehicle. This can be attractive if you want flexibility without worries about ownership.
What are the risks of financial leasing?
While financial leasing offers many advantages, there are also risks to consider. One key risk is residual value risk. If the market value of the vehicle at the end of the lease period is lower than expected, there could be financial consequences if you decide to sell the vehicle.
Moreover, it is important to be aware of the obligations in case of breach of contract. If you cannot keep up the monthly payments, this could lead to additional costs or even loss of the vehicle. Make sure you have a realistic budget before entering into a lease agreement.
How can financial leasing contribute to a company's growth?
Financial leasing can play an important role in growing a business by optimising cash flow and freeing up capital for other investments. By choosing a leasing option, you avoid a large one-off expense, leaving your working capital available for other business activities.
Moreover, fixed monthly payments offer stability and predictability in your financial planning. This makes it easier to budget and can help you invest in other growth opportunities. Whether you are a sole trader or a large company, financial leasing can give your business the flexibility it needs to grow.
At Van den Hurk Bedrijfswagens, we understand the needs of business owners and offer tailor-made financial leasing solutions. With almost 60 years of experience and an extensive range of commercial vehicles, we are ready to help you find the perfect solution for your business. Contact us to learn more about our leasing options and how we can support you with your growth goals.
