Equipment Leasing Glossary of Terms
The payment or payments made at the initiation of the lease contract, i.e. first rental payment or first and last rental payments.
A lease provision allowing the lessee to renew the equipment lease for a rental rate predetermined at lease inception that is substantially lower than the expected fair market value at the date of the option.
A subsidiary leasing arm of a manufacturer or dealer.
A true lease in which the lessor assumes the depreciation risk. The lessee bears no obligation at the end of the lease.
A payment schedule that allows you to defer your first payment by 60 or 90 days.
Assuming that the lessee is not in default, this is an option at the end of the lease to buy the leased property for $1.00.
To compare this rate with a loan interest rate, a company must include in the cash flows any effect the transactions have on federal tax liabilities.
For purposes of calculating the maximum allowable term of a “tax-oriented lease,” this is the “fair market value” of the lease equipment at the end of the lease term, calculated in constant dollars excluding inflation or deflation.
The estimated time period leased equipment is expected to be useful.
An end-of-term lease option that allows you to purchase the equipment at its fair market value.
A type of lease whereupon the lessee makes periodic payments for the use of an asset with an option to purchase for a nominal fee at the end of the lease term.
The periodic payment to a lessor for the use of assets.
Numerical factor multiplied by total cost of equipment to compute periodic rentals.
The fixed term of the lease.
A maximum amount of funding designated by the lessor for a lessee to use over a fixed commitment period.
The party that leases the equipment.
The company that agrees to buy the equipment and rent it back to you.
Equal periodic payments over the term of the lease.
A lease where payments paid to the lessor do not include insurance, taxes and maintenance, which are paid separately by the lessee.
A lease in which the cash flows will not be sufficient to cover the full costs of the equipment, the costs of financing, the costs of administration and to provide a satisfactory return. The lessor looks to the residual to realize profit.
A lease which includes a provision for extending payments under the lease on predetermined terms after a set period of time.
For accounting purposes, an operating lease is any lease which is not a capital lease. These are generally used for short term leases of equipment. The lessee can acquire the use of equipment for just a fraction of the useful life of the asset.
A lease structure that allows you to add new equipment on an ongoing basis without changing the basic terms or conditions.
A provision, assuming the lessee is not in default under the terms of the lease, by which a lessee has the right to purchase the equipment at the end of the lease. The purchase option may be stated at a specific dollar amount or at fair market value.
Lessee’s option to renew a lease contract when it ends.
The value of the asset at the end of the lease.
You sell equipment that you already own to a lessor who agrees to lease it back to you.
A payment schedule that allows you to skip monthly payments without incurring penalties.
Geared for companies with limited cash who are dependent on the acquisition of specific equipment to increase revenue. Payment amounts increase over time under this repayment schedule.
A lease where the lessor recognizes the tax incentives provided by the tax laws for its investment and ownership of equipment. Generally, the lease rate factor on tax leases is reduced to reflect the lessor’s recognition of this tax incentive.
The length of time a lease agreement will remain in force. The rules of an agreement as supplied on a rental or lease contract between the customer (lessee) and the lessor. The terms of the contract will govern such things as the length of the agreement, rules of proper cancellation of the agreement, renewal terms, and charges for breech of the contract.
Depending on its structure, a type of lease that allows you to fully claim lease payments for tax purposes. The term is generally shorter than the full useful life of the equipment. At the close of the lease, you can decide to purchase the equipment at fair market value.
A partnership between a funding source and manufacturer or dealer to offer leasing to their customers. In this case, the funding source can be likened to a captive lease company.