Fuel cells, electrolyzers, storage solutions or hydrogen-based production processes are technically available. But the ramp-up of the hydrogen economy also requires investment. For many companies, especially small and medium-sized enterprises, the question therefore arises: How can the entry be financed in an economically viable way? Leasing is a suitable model for many of these projects.
Leasing or loan?
At first glance, leasing and a bank loan appear similar. In both cases, regular installments are paid, the financing partner wants to limit its risk and achieve a return on the capital provided. Leasing is no magic bullet; the equipment does not become cheaper through a leasing contract. What changes is the structure: Who pays what and when, and who bears which risk?
Bank loan: The company takes on debt, purchases the equipment and records it as a fixed asset on the balance sheet. The liability appears on the liabilities side of the balance sheet. This burdens key financial ratios such as the equity ratio and debt-to-equity ratio, and limits the scope for further investments.
Leasing: The equipment remains the property of the lessor. For the lessee, the investment does not appear as a liability on the balance sheet. The lease payments are tax-deductible as operating expenses. The company uses the equipment without having to own it, thereby improving its credit lines and creditworthiness vis-à-vis banks.
Leasing is particularly recommended when liquidity and balance sheet flexibility need to be preserved, when predictable operating costs over a medium-term period are desired, or when the technology is still evolving and a later replacement is foreseeable. A bank loan may be more appropriate when long-term ownership is the goal or when tax depreciation benefits are to be utilized.
Leasing does not work for every investment size. At Würth Leasing, the practical entry point is an investment volume of around 50,000 euros. Below that, the administrative effort of a leasing contract is often not economical.
Typical terms for industrial equipment range from 36 to 72 months. The specific term is determined by three factors: the technical useful life of the equipment, the tax depreciation requirements (which define minimum and maximum terms) and the company’s liquidity planning. Short terms mean higher monthly installments but offer earlier flexibility. Longer terms reduce the installment and preserve liquidity. At Würth Leasing, there is a purchase option at the end at a residual value agreed upon at the time of contract signing.
A different risk allocation structure
Leasing changes the risk structure. Würth Leasing operates as an asset-based financier and places the primary risk on the asset itself. The assessment therefore focuses on the equipment and its technical quality, the realistic useful life and the recoverable residual value. In other words: Could the equipment be resold or otherwise utilized if needed?
The company’s creditworthiness must also be sound, but it is not the primary focus. A company with good assets and a solid project basis can be eligible for leasing even when conventional banking ratios signal no further borrowing capacity.
Depending on the technology, the project and the credit situation, it may be advisable to agree on a down payment. This reduces the monthly lease payment for the lessee and provides the lessor with additional security, as part of the asset value is covered from the outset.
For young technologies such as electrolyzers, the residual value assessment is naturally more cautious than for established industrial technology. This is factored into the calculation. Leasing is therefore not a tool for circumventing risks; rather, it is a different, and often better-suited, structure for risk allocation.
Case study: When the bank says no
This could look as follows, for example: A medium-sized metalworking company wants to purchase an electrolyzer for on-site hydrogen supply at a cost of 800,000 euros.
The company is financially healthy but has financed substantial investments in new production lines through bank loans in recent years. The debt-to-equity ratio is correspondingly high, and the company’s principal bank sees no further scope for additional liabilities.
Through leasing, this project can be structured differently. The new equipment does not appear as a liability on the balance sheet. The credit line with the principal bank remains untouched. Würth Leasing assesses not only the company’s creditworthiness but also evaluates the equipment itself and its technical quality, the useful life and the realistic residual value. On this basis, a leasing contract over 60 months can be structured that fits the liquidity planning. The project thus becomes feasible by allocating the risk differently.
The funding bottleneck
Many hydrogen projects originate in existing industrial and SME structures: in mechanical engineering, metalworking, supplier companies or energy-intensive industries. As part of the Würth Group, Würth Leasing has been supporting such companies for many years.
In recent months, companies from these industries have repeatedly expressed interest in Würth Leasing’s offerings with specific hydrogen projects. These involved electrolyzers for on-site supply, infrastructure for hydrogen-powered logistics or production facilities with new processes.
Nevertheless, such projects could often not be implemented via leasing until now, because funding programs did not allow it. An explicit exclusion of leasing is rarely found. Rather, many funding programs require the applicant to be the legal owner of the funded equipment. Since ownership remains with the lessor in a leasing arrangement, such investments have been considered ineligible under numerous programs to date.
Affected programs include, among others, various KfW programs for energy efficiency and decarbonization, BAFA funding for process heat systems, as well as several federal state funding programs with a technology focus.
Even if a project is technically and economically worthy of funding, eligibility has until now been able to fail due to the form of financing.
Funding programs are opening up
This situation is beginning to change. According to the German Federal Association of Leasing Companies (Bundesverband Deutscher Leasing-Unternehmen), several federal state funding programs are adapting their guidelines and opening up to this form of project implementation as well. Some programs are reviewing their guidelines and creating exceptions or clarifications that can permit leasing. This means: In the future, investments may more frequently be eligible for funding even when they are financed through leasing.
This has a significant impact in practice. Leasing, independent of funding programs, has been an established financing instrument for decades. Companies can use equipment without it appearing on the balance sheet, thus preserving their financial flexibility.
Where funding programs can additionally be utilized, this effect is amplified: public funding and structured lease financing can be combined, which can significantly improve the economic viability of individual projects. Especially in an early market phase, this can facilitate private-sector financing and thus the ramp-up of the hydrogen economy.
