A long-term lease offers substantial support to your company.  It does not tie up capital, it reduces investment and capital costs subject to depreciation and it enables an equal distribution of expenses over the life time of the contract.  What alternatives are there to long-term leasing on the market?  Discover how a long-term lease differs from other forms of financing.

Selecting the method of financing is usually influenced by the state of the company's finances.  A company's level of capitalization would have to be quite high to justify acquiring vehicles with in-house capital.  If the company pays for the vehicle in cash, the total cost is entered as a capital expense.  If a classic type loan is used, a down payment or advance payment may be necessary to secure a competitive interest rate, or as with financial leasing, there may be a large initial installment.

• When a company purchases a vehicle (cash or loan)  Self-financing of vehicles is done only when the company has very high levels of financial resources to devote to this expense rather than to productive investments.  Such financing represents a cost (the capital could be invested) that the company may decide to bear if it has a surplus of financial resources.  If the company employs borrowed capital, it pays the finance costs and decreases the amount of resources available for productive investment.  Only interest on the loan can be entered as costs.  The amount financed by the loan is entered into the company's liabilities as a financial debt.
• When a company uses financial leasing and then purchases the vehicle (financial leasing)  Acquiring a vehicle through financial leasing makes it possible for the company to not use its own capital or financial resources even if, as is common, the leasing company requires an initial contribution or advance payment.  The company saves its resources for future investment. Nevertheless, the lease payments are shown in the off-balance sheet liabilities of the company.  It may be considered when assessing the solvency of the company.  Expenses are distributed over the contractual period, which is now five years for passenger and utility vehicles, and monthly installments can vary according to the length of the financing period and the amount paid for the vehicle upon expiry of the contract.  In the end the company buys a vehicle, usually for a very low price, but that potentially has very high mileage and will be expensive to maintain.
• When a company's vehicles are on a long-term leasing contract (operational leasing)  If a company chooses to use operational leasing, the expenses are evenly distributed over the contractual period.  There is no advance payment or contribution, protecting both the company's capital and financial strength.  The remaining amount due on the lease does not show up in the off-balance sheet liabilities (unlike with financial leasing) and has no impact on the company's ability to assume new debt.