B
Balloon Payment: A payment on a leasing loan that is unusually large compared to the other payments on the loan.
Bargain Purchase Option: A renewal option that will, be exercised because the consideration to be given for the purchase is so nominal as to be insignificant.
Basis Points: Units of 1% with each unit equal to 0.01% (1/100%).
Bill of Sale: A written leasing document that shows evidence of the transfer of ownership of property.
Book Value: For accounting purposes, the value of an asset according to depreciation schedules which may or may not be market value.
C
Capital Lease: The term "capital lease" is a FASB (accounting) classification. A lease is classified as a capital lease when the risks and benefits of ownership are transferred from the lessor to the lessee. With a capital lease, lessees must treat the lease transaction as if the asset was purchased. A capital lease does not qualify as a True Lease for tax purposes or an Operating Lease as defined by FASB 13 accounting standards.
Certificate of Delivery and Acceptance: A document that states that the equipment to be leased has been delivered and is acceptable. Many lease agreements state that the actual lease term commences once the D&A has been signed.
Certificate of Insurance: A statement summarizing the policy’s coverage that is written from an insurance company or its agent
Closed-end Lease: A lease that does not contain a purchase or renewal option, which requires the lessee to return the equipment to the lessor at the end of the lease term.
Co-lessee: An additional person that is added to the lease. The lease will provide that the co-lessee and the lessee are both accountable for the lease agreement.
Commercial Lease: A lease in which the lessee has entered into a lease for business or commercial.
Commitment Fee: A fee that is required by the lessor at the time the proposal or commitment is accepted by the lessee in order to lock in a specific lease rate and/or other lease terms. A commitment letter is a document prepared by the lessor that details its commitment, including rate and term to provide lease financing to the lessee. This document precedes final documentation and may or may not be subject to other conditions, such as lessor credit approval, guarantors, collateral, etc. This fee is typically at least $2,000 or 3% of the asset cost.
Conditional Sales Contract: An agreement for the purchase of an asset in which the lessee is treated as the owner of the asset for federal income tax purposes. This entitles the lessee to the tax benefits of ownership, such as depreciation, but the lessee does not become the free and clear owner of the asset until all terms and conditions of the agreement have been satisfied.
Compiled Financial Statements: A compilation is the presentation, in the form of financial statements, of the representations of the owners or managers with no assurance made by the CPA. An accountant generally performs few, if any, procedures, and it is substantially less than a review services report. For this reason, the accountant's compilation report will include wording similar to the following: "A compilation is limited to presenting in the form of financial statements information that is the representation of management. We have not audited or reviewed the accompanying financial statements and, accordingly, do not express an opinion or any other form of assurance on them."
Consumer Lease: A lease in which the lessee has entered into the lease transaction for personal, family or household purposes. In some states certain agricultural leases may be considered consumer leases.
Contingent Liabilities: Liabilities which are difficult to quantify, or which may or may not come to pass, such as outstanding lawsuits.
Cost of Capital: The weighted-average cost of funds that a firm secures from both debt and equity sources in order to fund its assets. The use of a firm's cost of capital is essential in making accurate capital budgeting and project investment decisions.
Cost of Goods Sold: The total cost of purchasing raw materials and manufacturing finished goods. Equal to the beginning inventory plus the cost of goods purchased during some period minus the ending inventory.
Coterminous: Two or more leases that terminate on the same day.
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D
Discount Rate: An interest rate that is used to bring a series of future cash flows to their present value.
E
Early Equipment Leasing Termination: The termination of a lease before the end of its original term.
Economic Life of an Equipment Lease: A term used in the equipment leasing industry
, estimated period of time during which an asset will have economic value and be useable for a business.
End-of-Term Options: Options stated in the lease agreement that give the lessee flexibility in options of the leased equipment at the end of the lease term.
Equipment Lease Schedule: A document in a lease which describes in detail the equipment being leased.
Equipment Lease: A transaction in which use and possession but not title to tangible personal property is transferred for a consideration
Exemption Certificate: A document that certifies a party to a transaction is exempted from sales or use tax liability under certain governmental specified circumstances.
F
Fair Market Value Lease: A lease where the lessee has the option at lease end to purchase the equipment at fair market value, renew the lease, or return the equipment to the lessor. An FMV lease provides tax advantages because the lessee can fully claim the lease payments as a business expense. From an accounting perspective, a FMV lease generally qualifies as an operating lease.
Fair Market Value Renewal: An equiment financing lease that includes an option for the lessee to renew the equipment financing lease with the equipment value at its fair market value at the end of the lease term.
Finance Lease: 1) As most frequently used, a net lease which has as its purpose the financing of the use of property for a major portion of the property’s useful life. The term is typically used in reference to leases written by third-party lessors (see third-party lessors). 2) General term applied to most types of equipment leases. Typically, a finance lease is a full-payout, non-cancelable agreement, and the lessee is responsible for maintenance, taxes, and insurance. Nationwide Business can provide financial leasing for equipment.
Fixed Purchase Option: An option given to the lessee in the equipment financing industry to purchase the leased equipment from the leasing company on the option date for a guaranteed price.
Full-Payout Lease: An equipment lease in which the lessor recovers all costs incurred in the lease plus an acceptable rate of return, without any reliance upon the leased equipment’s future residual value.
Full-Service Equipment Lease: A lease that includes many additional services such as maintenance, insurance and property taxes that are paid by the lessor, the cost of which is built into the lease payments.
G
Gross Lease: In the equipment leasing industry gross lease is when the lessor is liable for insurance, property taxes, maintenance and expenses.
Guarantor: One who is obligated on a guaranty agreement in an equipment financing lease. A guarantor may be another company and/or an individual.
Guaranty: An agreement to answer for the debt or obligation of another if that other party fails to pay or perform.
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I
Incremental Borrowing Rate: At the inception of the lease, the leasing rate that, the lessee would have incurred if it had borrowed funds over a similar term to purchase the leased asset.
Insurance Interest: An interest capable of being protected by a policy of insurance within an equipment financing lease.
Investment Tax Credit (ITC): A credit against taxes otherwise due from a taxpayer under the Internal Revenue Code. The credit is generally computed as a percentage of the costs of certain types of assets. It is currently not a part of the IRS Code.
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L
Leasing Acknowledgment: A formal statement by a party before a notary public to the effect that they have executed a specific instrument or document.
Lease Agreement: The contractual agreement between the lessor and the lessee that sets forth all the terms and conditions of the lease.
Lease: A legal contract where the owner (lessor) gives another party (lessee) the right to use a piece of equipment for a specified time in exchange for periodic payments. Nationwide Business offers equipment leasing loans.
Lessee: The equipment user of the leasing agreement.
Lessor: The equipment owner of the leasing agreement.
Lease Line: A pre-approved amount of leasing allowed a lessee by a lessor.
Lease Payment: The periodic payment made during the lease term. Such payments are usually of an even amount but it is not uncommon for a lease to have “gaps” in the payment amount, or to be otherwise contoured to fit, for example, the seasonal fluctuations of a lessee’s income. (Generally, leasing may provide for more creativity in this regard than a loan.)
Loss Payee: A party entitled to receive proceeds from an insurance settlement arising in connection with a covered casualty or loss.
Lease Purchase: Full payout, net leases structured with a term equal to the equipment's estimated useful life. As Lease Purchases include a bargain purchase option for the lessee to purchase the equipment for one dollar at the expiration of the lease, these leases are often referred to as "dollar buyout" or "buck-out" leases. Lease Purchases are considered to be Capital Leases.
Lease Term: Length of a lease, usually stated in monthly increments but occasionally stated in quarterly or yearly increments.
Leveraged Lease: An equipment lease where the stream of payments have a debt participant.
M
Master Equipment Lease: A continuing lease arrangement whereby additional equipment can be added from time to time merely by describing that equipment in a new lease schedule executed by the parties.
Modified Accelerated Cost Recovery System (MACRS): The current tax depreciation system as introduced by the Tax Reform Act of 1986, Generally effective for all equipment placed in service after December 31, 1986.
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N
Net Cash From Equipment Financing: Cash flows generated through debt and equity financing. Nationwide Business often uses this process.
Net Cash From Equipment Loan Investing: Leasing Cash flows associated with the buying and selling of fixed assets and business interests.
Net Cash From Operations: The sum of net profit, depreciation, change in accruals, and change in accounts payable, minus change in accounts receivable, minus change in inventories.
Net Income: Gross sales (revenue) minus cost of goods sold, SG&A, taxes, interest, depreciation, and other expenses.
Net Lease: A lease in which all costs in connection with the use of equipment, such as maintenance, insurance and property taxes, are paid for separately by the lessee and are not included in the lease rental paid to the lessor
Net Present Value / Present Value: Often used in the equipment financing industry, the discounted value of a payment or stream of payments to be received in the future, taking into consideration a specific interest or discount rate. Present Value represents a series of future cash flows expressed in today's dollars.
Net Worth: Total assets minus total liabilities of an individual or company. For a company, also called owner's equity or shareholders' equity or net assets.
Non-recourse Equipment Loan: When the lenders cannot look to the leasing company that sold them the lease for repayment if the lessee fails to meet its payment obligations.
Non Tax Equimpent Lease: The IRS treats the lease as if it were a purchase or loan for tax purposes. The lessee receives the same tax benefits as ownership. That means a customer is entitled to claim depreciation and interest expense deductions in lieu of claiming the lease payment as an operating expense deduction.
O
Operating Lease (FASB 13): The term "operating lease" is a FASB classification. The lease is accounted for as a pure rental. The equipment is neither shown as a liability nor an asset on the lessee's business balance sheet.
Owner's Equity: The residual interest in the assets of an entity that remains after deducting it's liabilities. A term used in the equipment financing industry.
P
Personal Property Tax: A tax on the ownership of personal equipment property. Frequently used in the equipment leasing industry.
Purchase Option: A provision that allows the lessee to purchase the equipment at the end of the lease. The purchase price may be stated as a specific amount or at fair market value. Purchase options are commonly used in the equipment leasing industry.
Purchase Order: An offer for the purchase of an equipment. The equipment purchase order will normally specify the terms and conditions under which the buyer is willing to make the purchase; when accepted by the seller it becomes the purchase contract.
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R
Renewal Option: An option in the equipment lease agreement that allows the lessee to extend the lease term for an additional period of time beyond the expiration of the initial lease term, in exchange for lease renewal options.
Residual Value: The value of an asset at the end of a lease.
Revenue: Total dollar amount collected for goods and services provided. Also called gross sales.
Reviewed Financial Statements: Financial statements often used and reviewed in the equipment financing industry that are accompanied by an accountant's expression of limited assurance.
Rule of 78: An accelerated method of allocating periodic earnings in a (Lease or a Loan) based upon the sum- of- the- years method.
S
Sale-Leaseback: A lessor buys equipment from a business and immediately releases the equipment back to the business. This provides a cash flow boost to the business, but allows the business to continue to use the equipment. In turn, the lessor receives lease payments on the equipment leasing.
Security Deposit: A specific amount paid at the inception of the lease by the lessee to insure full compliance with the lease and to provide the lessor with some protection against faults, delays, or other failures of performance by the lessee. Occasionally, advance periodic lease payments may serve the purpose of a security deposit, but more frequently, the security deposit is a separately identified obligation.
Service Lease: An equipment financing lease in which the lessor provided complete service, maintenance, and care for the leased equipment.
T
Tangible Assets: Economic resources with future benefit that are used in the normal operating activity of the organization that can be physically observed, e.g., land, buildings, and equipment.
Terminal Rental Adjustment Clause (TRAC): A special type of lease where the lessee guarantees the residual value to the leasing company and the lease is treated as a true lease for tax purposes. TRAC leases can only be used for motor vehicles, such as trucks or trailers.
Total Assets: All items of economic value owned by an individual or corporation, especially that which could be converted to cash, including, but not limited to, cash, securities, accounts receivable, inventory, equipment, buildings, vehicles, and other properties. On a balance sheet, assets are equal to the sum of liabilities, common stock, preferred stock, and retained earnings.
Total Liabilities: All financial obligations, debts, claims, or potential losses.
True Tax Lease: Often used in the equipment leasing and equipment financing industry, The term "true tax lease" is an Internal Revenue Service classification. The lessor is the owner of the equipment for federal income tax purposes. The lessor receives the right to the tax benefits of ownership, including depreciation and any tax credits. The lessee receives a tax benefit by being allowed to claim the lease payment as as operating expense thus lowering businesses taxable income.
U
Uniform Commercial Code (UCC) Financing Statement: A document in the equipment financing industry, under the UCC, filed with a county (and sometimes the Secretary of State) to provide public notice of a security interest in personal property.
Useful Life: In the equipment leasing and equipment financing industry, useful life is the period of time during which an asset will have economic value and be usable. The useful life of an asset is sometimes called the economic life of the asset.
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X
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Y
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Z
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