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Equipment leasing

There are many opportunities for hiring capital equipment. It has been common practice for many years to rent very expensive equipment to save a large and immediate cash outlay. The rental agreement is usually accompanied by a maintenance agreement.

This principle is now being developed by finance companies to encourage more widespread leasing of industrial equipment as an alternative to purchase. There are normally three parties: the manufacturer of the equipment, the finance company, or lessor, and the customer. The customer agrees with the lessor a minimum period of lease, probably not more than half the life of the asset. (He then may have an option to renew at a lower rental.) When this agreement is signed, the customer orders the equipment from the manufacturer. The equipment is delivered to the customer but invoiced to the lessor. The customer notifies the lessor that the delivery is satisfactory. and the lessor pays the manufacturer. The customer from then on pays a rental to the lessor.

Reference: The Penguin Business Dictionary, 3rd edt.