Looking to upgrade the equipment for your small business but don't want to purchase? Learn how to navigate an equipment rental agreement.
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by Belle Wong, J.D.
Belle Wong, is a freelance writer specializing in small business, personal finance, banking, and tech/SAAS. She ...
Updated on: November 22, 2023 · 5 min read
One potential consequence of the growth of a small business is the need for new or upgraded equipment. However, purchasing such equipment may not be the best alternative as the capital required to do so might be put to better use elsewhere. In many cases, the rental of any required equipment can often be a better option.
It's important to carefully review the terms of the equipment lease agreement you sign, regardless of whether it's a simple equipment lease agreement, a standard-form contract, or a more specific type of rental lease, such as a heavy equipment agreement.
The basics of any commercial equipment rental lease are as follows:
Even though most rental companies use a standard equipment lease agreement, you should still carefully review the document's terms and conditions. If there are any clauses in the agreement that you're concerned about, you may be able to negotiate better terms for yourself.
Important terms and conditions in any equipment rental contract include the following:
In addition to the standard conditions contained in most equipment lease agreements, you may find some optional provisions, including:
In a lease-to-own agreement, also known as a capital lease, title to the leased property is transferred to the lessee at the end of the lease term. Such leases are actually an alternate way of financing the purchase of equipment, which means lease payments in such agreements are higher than in a standard equipment rental agreement because they factor in the eventual transfer of ownership to the lessee.
From an accounting perspective, the distinction between a lease-to-own agreement and a regular lease has particular significance because the lessee can claim the tax advantages of owning the leased equipment, such as depreciation.
Equipment rentals are often a good option for a small business in need of upgraded equipment or new equipment to handle an expansion of its services. Before you sign an equipment rental agreement, a thorough review of the document will give you a better understanding of your rights and responsibilities.
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