Leasing more popular than bank credit among small and medium companies

Oct 14, 2019 Finance

Leasing more popular than bank credit among small and medium companies

70% of new cars in the USA are purchased under lease. About half of them are purchased by micro, small and medium enterprises, which have started to appreciate the advantages of this financing tool. This segment of customers is becoming more and more attractive for leasing companies, so they adapt their offer to the needs of even one-person companies.

– Micro-enterprises, like large companies, have already noticed the advantages of leasing. They are the same in both cases. First of all, it is a tax shield. All costs resulting from leasing a car are tax deductible costs for the company, thus reducing the tax base.

 

Another advantage is the fact that such a method of financing, unlike a loan, does not burden the balance sheet of the company. If the company wants to take out a loan, e.g. for the purchase of a machine or a production line, its balance sheet in the bank will be much better, and thus the creditworthiness will be better determined.

Another benefit for small companies is the fact that the use of new passenger cars or transport vehicles under lease does not generate as much financial outlays as their purchase. In the case of leasing, a monthly instalment is a payment for the loss of value of the car, and not for the total cost of purchasing the car.

– It is also worth noting the image effect. A car is a very good advertising medium and a very good tool for motivating employees. Providing employees with new cars every three years, safe, with full service, so that they do not have to worry about what they will do in the event of any breakdown or unforeseen situation on the road, is also a huge benefit that we want to offer to micro and small enterprises.

As he points out, it is important that the monthly rental cost also includes expenses for insurance, assistance and maintenance.

– In the case of small and medium-sized enterprises, it is usually the company owner or president who is responsible for the car fleet. And it is they who spend their valuable time searching for a buyer for a used car or negotiating terms and conditions for servicing these cars or helping a user who went from Olsztyn on a business trip to Szczecin and had a breakdown there.

In the USA, there are currently 1.8 million entities employing less than ten employees. According to the expert, this is a huge potential for leasing companies. Although previously they were focused mainly on servicing the largest corporations, they have already noticed the potential of such small and microenterprises.
– This is a huge market, both in terms of the number of cars and effectiveness. – In terms of efficiency, the USA is in the middle of the European average, and there is still a lot to be done in this area. One of the best ways of increasing efficiency is through specialisation. When someone deals with cars, roadside assistance and ensuring mobility on a daily basis, they will do so better than a micro-business developing software.

The leasing industry adapts its offer to the smallest companies that value flexibility the most in this form of financing. According to the European Leasing Fund Barometer, in Q1 it was no longer bank credit but leasing that was the most popular financial product for companies.

The industry offers small and medium enterprises not only leasing, but also other flexible solutions, e.g. related to rental.
– Entrepreneurs who provide seasonal services need five cars and, apart from holidays, only two cars, or people who start a new business and do not want to invest immediately in new cars or long-term contracts, can benefit from such a flexible service. If, after three months, it turns out that the idea is a success, they extend the contract. If after three months it turns out that the idea did not work out, they can return such a car without any additional costs.