This leasing glossary features numerous terms which may help you to better
understand how leasing works. If you have any questions, we always recommend
you contact us here.
Advance Rental Payments
The payment or payments made at the inception of the lease agreement (i.e.
the first rental payment or first and last rental payment.)
Assignment of Proceeds
Under an Assignment of Proceeds agreement, the vendor agrees to allow
the Lessor to fund the manufacturer's cost of the equipment directly to
the manufacturer at the time of funding.
Commitment Deposit
A deposit required by the Lessor at time of signing which ranges from
1-2% of the total equipment cost, or the equivalent of the first rental
payment. It is generally applied to rental on a pro rata basis if the
commitment is taken down or returned if the lease is declined.
Commitment Letter
The letter prepared by the Lessor to spell out terms and conditions between
Lessee and Lessor for a master lease line of credit.
Dealer Lease Referral Application and Agreement
This one page agreement provides the Lessor with valuable information
about the equipment vendor. By means of this agreement, the vendor agrees
to pass clear title to the equipment to the Lessor upon delivery, acceptance
by the Lessee and funding by the Lessor.
Electronic Funds Transfer (EFT - also known as ACH)
A wire transfer in which the Lessor pays the equipment vendor. At time
of funding this amount is wired to the vendor minus any payments agreed
upon in the Assignment of Proceeds.
Fair Market Value (FMV)
The open market value of the asset at the termination of the lease. A
Purchase Option under a True Lease is generally the Fair Market Value
at the end of the lease.
Fair Market Renewal Value
The rental payment paid monthly for a period of up to one year if the
Lessee elects to renew the lease once it has initially terminated. The
value is determined by negotiation between Lessee and Lessor and represents
the Fair Market Rental/Renewal Value.
Finance Lease
A financing device whereby a Lessee can acquire title to the asset for
a nominal amount or a guaranteed purchase amount. For tax purposes this
form of lease is usually considered a conditional sales contract. Generally,
a Finance Lease is non-cancelable during the term of the lease; and the
end-user is responsible for maintenance, taxes, insurance and other costs
of ownership.
Full Payout Lease
A lease in which the cash flows will pay the Lessor the full equipment
cost plus an agreed upon return over the lease term.
Landlord Waiver
A document prepared by the Lessor which is signed by the Lessee's landlord
which gives up any rights he may have in the leased equipment at the Lessee's
place of business. This waiver allows the Lessor to remove the equipment
in case of default or at end of lease. It also protects the Lessor in
cases where leased equipment is attached to real property.
Lease
An agreement granting or letting the possession of land, building, machinery,
personal property, etc., for a fixed or indeterminate period, for a stated
consideration usually known as rent.
Lease Commencement
The Lease Commencement Date is the date equipment is accepted by the Lessee
as evidenced by Lessee's execution of an Acceptance Certificate.
Lease Proposal
A written agreement between the Lessor and Lessee that outlines the basic
terms and conditions of a specific lease transaction. Both parties sign
this proposal, and it is subject to credit approval.
Lease Rate
The simple equivalent interest rate excluding depreciation and residual,
if any.
Lessee
A party who makes use of property owned by another party (the Lessor)
and pays the Lessor, usually in the form of rentals, for that use.
Lessor
Company or leasing entity that is legal owner of the leased equipment.
Level Payments
Equal payments over the term of the Lease.
Master Lease
An open-ended lease agreement under which a Lessee obtains the use of
specific property and can add additional equipment periodically. Eliminates
signing new leases as additional equipment is leased.
Net Lease
With a Net Lease, the rentals are payable to the Lessor.
All costs in connection with the use of the equipment are to be paid by
the Lessee and are not a part of the rental. For example, taxes, insurance,
and maintenance are paid directly by the Lessee.
Pre-Funding
Many vendors require that they be paid at least
50% of the invoice amount once the lease is funded. This is called prefunding.
It must be approved by the funding source. For Pre-Funding to be accepted,
both the vendor and lessee must be stable for acceptance.
Security Deposit
A Security Deposit is an advance payment that is usually
equal to two lease payments,. This deposit is retained by the Lessor for
the term of the Lease. If the lease is never finalized for reasons that
are not the fault of the Lessor, the deposit will be kept by the Lessor
for administrative costs. If any part of the deposit is remaining at the
end of the Lease term and the Lessee has completed all of his / her obligations,
the Deposit is returned to the Lessee or can be applied to the Purchase
Option, if any, or to any remaining payments.
Soft Costs
Freight, software, labor and other intangible
items are frequently defined as soft costs. Many funding sources will
only allow a certain percentage of the total transaction to be soft costs.
Because these costs can generally not be recovered in case of default,
they increase the inherent risk of the lease.
True Lease
A True Lease is a transaction that qualifies as a lease under the Internal
Revenue Code. This lease functions so that the Lessee can claim rental
payments as tax deductions and the Lessor can claim tax benefits of ownership
such as depreciation.
Uniform Commercial Code (see Financing Statement - UCC1)
A standardized program and method of administering, legalizing and recording
lien instruments adopted now by all states except Louisiana.
Useful Life
The period of time during which an asset will be usable and have some
economic value. To qualify as an operating lease, the property must have
a remaining useful life of 25 percent of the original estimated useful
life of the leased property at the end of the lease term, and life of
at least one year.
Usury
Many states have passed laws that limit the interest rate that can be
charged on loans. These laws are called "Usury Laws". In states
such as Texas, Arkansas, Florida and Nebraska, $1.00 buyout leases are
also subject to Usury and, as such, leasing companies have either refused
to write such leases in these states or require certain addendums or additional
documentation.
Have a question about equipment leasing that you could
not find on this site? Please contact us
here.
Access Equipment Leasing
582 Sutter Street
San Francisco, CA
94102-1102
Call Toll Free: 1-800-409-5594
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