Leasing and credit - similarities and differences

Service Business

What to choose - leasing or credit? Many entrepreneurs face this dilemma. Both financing methods have advantages and disadvantages that make either of them a better option in certain situations. So what should be followed when facing such a choice? We invite you to read.

Why leasing?

Leasing is an option that should be used by enterprises that intend to obtain goods that are intended for exploitation. Cars are a perfect example of this type of items - a large percentage of companies in Poland decide to lease them and are very satisfied with this solution.

Before making the final decision, a detailed simulation of the costs that the entrepreneur will incur in the future should be carried out. It may turn out that, after all, it will be more profitable to buy a given item - using a loan or own capital.

What may be convincing about leasing is the relatively short financing period, usually between 2 and 5 years. Another advantage is the small number of documents necessary to complete the formalities. Leasing companies do not thoroughly check their client's creditworthiness (the collateral, which is the subject of the leasing contract, is more important for them) and do not require a high own contribution (usually between 0 and 45%).

Why a loan?

Taking a loan from a bank is a recommended solution, among others companies that intend to purchase real estate. It is a very common way to obtain the financial resources necessary to equip the company with the necessary assets. The popularity of this solution is evidenced by the fact that many banks have a separate loan offer for business activities.

There are two basic types of loans - investment and working capital. In the context of the comparison to leasing - due to a similar application - we will be interested in the first of them.

The main difference between leasing and credit is the length of financing. In the case of the former, it may be from one month to 10 years.Thanks to this solution, the loan installment is in many cases lower than the leasing installment.

A serious disadvantage of the loan is the huge number of documents that must be submitted to obtain it (including certificates from the Social Insurance Institution, Tax Office, financial statements, business plan) and the need to have collateral - e.g. in the form of a mortgage - and a higher contribution than in the case of leasing own (from 0 to 90%). The so-called credit history - too short causes the company to be rejected during the verification of creditworthiness.

Leasing or credit?

In summary, leasing and credit have many advantages and disadvantages. Only some of the ones that occur in practice are presented above. It is not possible to clearly state the advantage of one of them - the choice is made by the entrepreneur who should take into account a number of important circumstances, which include: the company's financial situation, its creditworthiness, the industry in which it operates, the type of item needed.