Should You Sign an Equipment Rental Agreement?
If you need some equipment for your company and purchasing it is too expensive, you could be considering entering into an equipment rental agreement. Instead of investing lots of money upfront, you can stretch your budget for a longer period by leasing the necessary equipment.
What Is an Equipment Rental Agreement?
An equipment rental agreement, also known as an equipment lease agreement, is a contract between two parties concerning the use of equipment.
The two parties involved are the:
The lessee rents the equipment from the lessor for a fixed period defined in the equipment rental contract. The contract also states the compensation that the lessor will receive for providing this service.
With a short-term equipment rental agreement, it is customary that the lessor offers the lessee an option to:
- Renew the agreement
- Terminate the equipment rental contract
- Purchase the rented equipment
These options depend on the terms and conditions of the original equipment lease agreement that both parties agreed on.
What To Include in an Equipment Rental Agreement
An equipment lease agreement is an important business and legal document since it consists of the terms and conditions defined and set between the lessor and the lessee.
Every equipment rental agreement should include the following parts:
- The duration of the lease
- Financial terms
- Compensation to the lessor
- The market value of the equipment
- Tax responsibilities
- Cancellation provisions
- Renewal options
The usual practice is for the lessor to draft an equipment rental agreement, making sure to include all relevant data and sections. The lessee should review the agreement and negotiate any modifications. When both parties agree on the stated terms, they sign the contract and keep it in their records.
Should Your Company Get an Equipment Lease Contract?
More than 9,600 U.S. companies rent industrial equipment to other legal entities. It means that lots of businesses choose to rent their equipment instead of purchasing it.
Signing an equipment rental contract can bring the following benefits to your business:
- It improves your working capital
- Your company can save some money
- This arrangement might lead to tax benefits
- You need to make monthly payments instead of paying the whole amount upfront
- Your business can use the latest technologies at a more affordable cost
How To Secure Funds for Your Equipment Lease
If you own a start-up or small company and lack financial resources, you can choose a few options to secure the necessary funds for an equipment lease:
- Banks—Some banks offer good credit terms to SMEs. Review various offers online, go to branches, and talk to loan officers to choose the most suitable offer
- Leasing companies—You should turn to a few leasing companies to check the terms, conditions, and quality of service they provide. Doing research, checking online reviews, and getting in touch with their clients will help you choose
- Equipment distributors or dealers—Some corporations that sell equipment have subsidiary companies providing equipment leases
Equipment Rental Agreement Types
There are two common types of equipment lease agreements:
|Type||What Is It?|
|This type is a long-term equipment rental agreement that you choose if you would like to:
|This is a short-term equipment lease agreement that companies can terminate before the lease period expires. You opt for this type of agreement if you would like to:
For the capital lease agreement, the lessee needs to keep records of all assets and liabilities of the equipment in a balance sheet throughout the lease period. Plenty of companies choose this type of agreement when they need expensive equipment they cannot afford to buy right away.
There are other types of equipment rental agreements that combine the two above-mentioned types. You need to take into account your specific business needs and create a contract that best suits your needs.
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