Whether you're just starting out or already established, entrepreneurs like you often have big plans, and that's a good thing.
But it can sometimes be discouraging when you can’t immediately purchase the equipment you're dreaming of, or when you find yourself in a position where you’d rather keep a little capital to one side for other investments.
Whatever you're after, KBC has three different formulas to help cover the cost of the machinery, equipment, or property for your business.
You can use a traditional investment credit for purchasing fixed assets such as property for your business, company cars and equipment.
Renting is a second option that entrepreneurs often choose. This is an off-balance-sheet financing arrangement where you, as a business, pay a regular rental fee to KBC for use of the equipment.
Or perhaps a leasing method would suit you better. As lessee, you capitalise and depreciate the purchased equipment directly on your balance sheet. You get the right to use the goods, but KBC remains the legal owner of your purchases.
We take a closer look below at what leasing entails.
What is leasing?
When leasing, a lease company like KBC buys the equipment for you. You then pay a monthly fee to use it, similar to renting.
Leasing is only available for goods which are and will continue to be moveable. Goods that become immovable upon installation or assembly (such as built-in furniture, security systems, or solar panels fitted to a building) are not eligible for leasing, which is only an option for items with an active resale market (such as construction equipment or agricultural and horticultural vehicles).
KBC buys the goods, but you have the right to use them. Additional costs, such as for repairs or insurance, are paid by you.
When the lease ends, you can buy the equipment for the residual value (4% of the purchase price of the goods as standard).
You have the freedom to decide what type of goods to buy and where, and you also choose what insurance cover, if any, you want.
There is nothing to pay upfront. KBC pays the supplier the full amount of the investment, including the VAT. You then repay this amount over the term of the contract.
The minimum investment amount is 9 000 euros (excl. VAT).
How does leasing work from the accounting point of view?
Once you’ve purchased the machinery, hardware or other business equipment, you obviously have to process it in your accounts.
With leasing, this is done through capitalisation and depreciation of the goods on your balance sheet.
The residual value at the end of the lease is 4% for most goods as standard. Certain specific items have a rate of 1%. By paying this residual value at the end of the lease, you become the owner.
You do not have to put up any collateral. This means you can use your collateral to secure other business loans, thus enabling you to finance other investments. In other words, you are increasing your borrowing capacity.
You lease a machine worth 25 000 euros (excl. VAT). This machine must be capitalised and depreciated on your balance sheet. Only the agreed residual value (4% as standard, or in this case 1 000 euros, excl. VAT) does not have to be capitalised. This means that the machine will be recorded on the assets side of the balance sheet with a value of 24 000 euros.
You can then depreciate this asset over the useful life of the machine. The most common approach is the straight-line method of depreciation where you depreciate the same amount every year. You arrive at that figure by dividing the purchase price by the useful life of the asset. If this was five years, for example, you may depreciate 4 800 euros every year. This depreciation is included as an expense in your income statement. This means the cost of purchasing the machine as shown on your statement is spread over time.
The amount that still needs to be paid on the lease is recorded on the liabilities side of the balance sheet (cost of the machine plus interest). Each time you pay off part of the lease, the amount still owed on the lease goes down, so this liability item will decrease over time. Payments on the lease include VAT, so you spread the cost of VAT over time as well.
If you choose to purchase the equipment when the lease ends, you will need to depreciate the residual value on your balance sheet. You can also choose to depreciate this value in the following year.
What’s the difference between renting and leasing?
We frequently get asked about the difference between renting and leasing. They are similar, but it is important to take account of the differences.
• Purchase option (or residual value) at the end of the lease: as standard, it is 4% when leasing, or 16% when renting.
• Accounting treatment: when leasing, you capitalise and depreciate the goods on your balance sheet, in a similar way to an investment credit. Renting, by contrast, enables you to record the invoices in your income statement as an operating expense, provided this is approved by your accountant or auditor.
What’s the difference between an investment credit and leasing?
When you opt for a traditional investment credit, you become the full owner of the business equipment you purchase.KBC’s role is limited to financing it. This means there is no link between the equipment concerned and the credit, which is why additional collateral is usually required to be put up as security.
If you instead opt for leasing, KBC will purchase the equipment and you have the right to use it. The equipment itself then serves as collateral for the repayment of the lease. Generally speaking, the better the collateral to secure the financing, the lower the rate of interest charged. Therefore, if you don't have any other collateral obligations, you will find that leasing usually has a better interest rate. For equipment that becomes immovable because of how it is used, such as solar panels, leasing is not possible and an investment credit is the only option.
Investment credit, leasing or renting: which is best for you?
To determine which approach suits you best, you need to take account of your personal preferences and your financial situation. Find out what's right for you in our handy table comparing all the formulas available.
How do I apply for financial leasing?
1. Choose the business equipment that you want to invest in and ask for a quote from the supplier.
2. Apply for financing online usingKBC Mobile, KBC Touch of KBC Business Dashboard. You can see straight away whether your application has been approved or needs to be checked by KBC.
3. Once the application has been approved and signed online, KBC will place the order with your supplier.
4. Pick up your business equipment as soon as your supplier contacts you. KBC will then do the rest.
5. Pay the regular invoice to KBC.
A quick summary of the benefits of leasing
• You are free to decide what type of goods to buy and where. This goes for any insurance too.
• There’s no down payment. KBC pays the full investment amount to the supplier (including VAT).
• You increase your borrowing capacity. Additional collateral is not required, so you can hold on to your collateral for other business loans. You therefore have additional scope for financing your operating capital and other possible investments.
• You repay the VAT over a longer period and KBC takes care of the prefinancing.
• Accounting treatment via the balance sheet: capitalisation and depreciation.
• If you want, you can buy the goods at the end of the lease for the residual value specified in the contract (4% as standard).
• You can now conveniently work out online how much leasing costs and immediately apply for it online, as well. You get the same personal rate online as you would at our branches.
You can also see straight away whether your application has been approved or needs to be checked by KBC.
Generate a no-obligation proposal
At KBC, you can save time by not having to make appointments at your branch. You can easily work out and apply for your financing online in just a few steps:
1. Choose the purpose you want to borrow for
2. Enter the amount you want to borrow
3. Specify the period over which you'll repay that amount
4. Get a no-obligation proposal right away
You can then convert our proposal into an application and check how feasible your financing is.
At KBC, you always get the best personal rate for you regardless of whether you've applied online or at your branch.