From 20% to 13.3% equity ratio — simply due to thoughtless financing?
A simple example: A company with EUR 1 million in total assets and an equity ratio of 20%. Higher would be preferable from a bank's perspective, but it's a start.
Now a strategic investment is on the horizon — a new production machine worth EUR 500,000. The company's bank is kind enough to finance it through a loan.
What happens to the balance sheet as a result?
🔹 Total assets increase to EUR 1.5 million due to balance sheet expansion.
🔹 Equity remains the same in absolute terms.
🔹 The equity ratio drops sharply from 20% to 13.3%.
At first glance, this may sound like dry accounting. However, it has very real consequences for bank ratings, equity covenants, and credit reports — all of which matter to suppliers and credit insurers.
Yet this effect is entirely avoidable.
If the same investment is structured strategically through leasing, the picture looks completely different:
🔹 The asset does not appear as a line item on the balance sheet.
🔹 The lease liability does not burden the liabilities side.
🔹 Total assets remain stable at EUR 1 million.
🔹 The equity ratio remains intact at 20%.
Leasing prevents balance sheet expansion.
It's not a bug, it's a feature.
This is the accounting treatment of finance leases under the leasing decrees applicable to HGB (German Commercial Code).
The decision between a loan and leasing is therefore far more than a simple comparison of interest rates and terms.
👉 It is also a matter of strategically managing your balance sheet structure.
P.S. Leasing is likely to come out ahead on tenor as well...
What role does the equity ratio play in your company?
From 20% to 13.3% equity ratio — simply due to thoughtless financing?
