ASSIGNMENT:

Lease agreements typically contain a provision permitting the lessor to transfer the lease to another party by “assignment.” Terms and conditions for assignment vary regarding options and other provisions such as the right, title and interest in the equipment financed. Generally, lessors employ their own documents and utilize assignment provisions to sell transactions to funding sources.

AUTOMATED CLEARINGHOUSE (ACH):

Commonly known as direct deposit. A system used to electronically transfer funds through a clearinghouse facility directly into the payee’s bank account.

BROKER:

An intermediary between the lessee and lessor. The broker arranges a leasing transaction. The broker is usually paid some fee by the leasing company for its service.

CAPITAL LEASE:

A specific classification of a lease for accounting purposes. The classification of the lease will determine how the lease is to be accounted for. A lease is accounted for by the lessee as a capital lease if it meets one of the following criteria: (a) at the end of the lease, the lessee owns the equipment being leased; (b) at the end of the lease, the lessee can purchase the equipment for a bargain purchase option; (c) the lease term exceeds 75% of the estimated economic life of the leased equipment; (d) the present value of all lease payments is equal to 90% or more of the cost of the leased equipment.

CROSS CORPORATE GUARANTY:

A guarantee by one corporation to pay the lease obligations of another corporation, provided that the two share common ownership.

DELIVERY & ACCEPTANCE:

A written verification by the lessee that they have received the equipment to be leased. Most leases begin after the date stated on the certificate of acceptance.

DEPRECIATION:

An allowable tax deduction for assets or equipment that are used up over their economic life period of time.

DOCUMENTATION FEE:

A fee charged to the lessee for the processing of the lease and other insurable cost which typically include the UCC with the local and state facilities usually the Secretary of State or County Clerk’s office.

DOLLAR BUYOUT:

A option at the end of the lease to buy the leased equipment for $1.00.

DUN & BRADSTREET:

A commercial credit agency that complies and provides, for a fee, a variety of historical information relating to the management, operating trends and credit worthiness of business organizations.

FAIR MARKET VALUE:

A end of lease option to purchase leased equipment at its then fair market value.

GUARANTOR:

An individual or business that promises to perform all of the lessee’s obligations, including making payments should the lessee fail to do so.

INSURANCE:

Most lessors require the lessee to insure the equipment against casualty loss, all risk and damages, and require that the lessee indemnify the lessor against any liability incurred from the possession, operation, or usage of the equipment.

LEASE:

A lease is a contractual document in which one party (the lessor) conveys the use of an asset to another party (the lessee) for a specific length of time (lease term) at a predetermined schedule of payments (usually monthly).

LESSEE:

The individual, partnership, or corporation using the equipment being leased from the lessor (owner).

LESSOR:

The party to a lease agreement who has legal or tax title to the equipment for the lease term and is entitled to the rental payments.

MASTER LEASE:

A continuing lease agreement that provides for equipment becoming subject to the terms of a single lease over a period of time. Schedules or addendums are then added to reflect equipment becoming subject to the terms of the master lease.

OPERATING LEASE:

Any lease that is not a Capital Lease. Generally used with equipment that rapidly depreciates or becomes obsolete in a short period of time. The lessor books and depreciates the equipment as an asset, and the lessee expenses the lease payments (usually classify these payments as an operating expense). An operating lease is condisdered an off-balance sheet liability and contains a provision to purchase the equipment at the end of the lease for the Fair Market Value. This is typically considered the most tax friendly form of leasing.

PURCHASE OPTION:

A document of a lease in which the lessee is granted the right to purchase the leased equipment or asset at the end of the lease term.

PUT OPTION:

A provision in a lease with the requirement to purchase equipment at a particular time and at a predetermined price at the end of the lease term.

RESIDUAL VALUE:

The estimated value of an asset at the end of the lease.

SALE LEASEBACK:

A type of lease whereby the equipment is purchased by a company using cash or credit card. The company then “sells” that equipment to a lessor who then leases it back to the original owner. This gives the lessee the opportunity  to regain the cash they has originally used to purchase the equipment while establishing credit with a lessor.

SOFT COSTS:

Non-hardware or other non-liquid acquisition costs of the lessor (training, shipping, service or installation charges.

TRUE LEASE:

A type of lease that qualifies as a lease under requirements of the Internal Revenue Code. It typically allows the lessee to claim lease payments as tax deductions and the lessor to claim tax benefits of ownership as a depreciation expense.

UNIFORM COMMERICAL CODE FINANCING STATEMENT (UCC-1):

A standardized document that is filed with the Secretary of State’s office and in some cases the County Clerk’s office in the state where the leased equipment is located. The filing defines the security interest and secures ownership of the leased equipment to the lessor. The filing defines the nature of the relationship between the lessor and lessee and also the specific assets for public record.