Accelerated Cost Recovery System (ACRS) (Modified)-A tax depreciation system modified by the Tax Reform Act of 1986. The ACRS sets depreciation methods for each class in lieu of statutory tables. Equipment is assigned among 3, 5, 7, 10, 15, or 20-year classes, all depending on ADR lives.
Add-on-Equipment leasing transaction that adds related equipment to an existing equipment lease. The term is used when additional equipment is financed using the same terms as the original transaction, such as Fair Market Value lease or $1.00 Purchase Option lease. The length of the add-on is almost always shorter, expiring on the same date as the original equipment lease.
Advance Rental Payments - Periodic rental payments collected by the equipment lessor at the equipment lease inception and applied to the rentals due under the lease. Advance rentals are applied to the payments owed; security deposits are not.
Alternative Minimum Tax (AMT)-Separate tax calculation based on the taxpayer's regular taxable income, which is increased by the taxpayer's preferences for the year. The resulting amount is called the Alternative Minimum Taxable Income (AMTI). After certain exemptions and offsets, the taxpayer determines their AMT and is required to pay the larger amount of the regular tax or alternative minimum tax. Among the preferences that can increase the taxpayer's AMTI is the accelerated portion of depreciation, making it more likely that a taxpayer who buys equipment may be subject to the AMT rather than the regular tax.
Amortization-Process to gradually extinguish capital expenditures in periodic payments over a predetermined length of time. It refers to the breakdown of periodic loan payments into two components: the portion of the payment that reduces the principal, and the portion that reduces interest on the remaining balance.
Annual Percentage Rate-APR indicates the effective rate of interest being paid on a loan when compounding the interest, and the costs of various fees that are taken into account. The term identifies the actual rate of interest being paid for a specified period, usually one year.
Application Only Credit Review-Refers to instances when an equipment lessor / equipment lender grants credit using only the information submitted on a credit application rather than requiring financial statements and/or tax returns. The information on the credit application allows the equipment lessor /equipment lender to research a potential borrower's prior re-payment history by viewing personal credit, bank references, and other references in addition to D&B reports, Paynet reports, and other public records.
Authorized Signature-Signature by a person authorized to enter the company into a financial obligation. An authorized signer will be verified by an equipment leasing company or equipment finance company through a Certificate Authorizing Resolution and Incumbency that specifies who can sign via their title.
Automated Clearing House (ACH)-Direct deposit or EFT (electronic funds transfer), a system used to electronically transfer funds from one bank account to another.
Bargain Purchase Option-Provision of an equipment lease that allows the lessee to purchase the leased equipment for a predetermined price which is typically lower than the Fair Market Value of the asset. This option is usually exercised at the end of the equipment lease, provided the lessee has complied with their responsibilities under the lease.
Basis Point-A unit of measurement equal to 1/100th of a percent. For example, 125 basis points = 1.25%
Buyout-The amount a lessee must pay in order to terminate the equipment lease in advance of the expiration date. This amount is typically calculated to include recapture of taxes paid, unpaid property taxes, and lost revenues.
Capital Lease-Equipment lease which is treated as a purchase on the lessee's books. Capital leases can usually be identified by one of the following characteristics:
Capped Fair Market Value Lease-Equipment lease with a predetermined ceiling, limiting Fair Market exposure at the end of the lease term.
Captive Financing-Occurs when a company, usually a wholly owned subsidiary, finances customer purchases from the parent company.
Cash Flow-Measure of a business' ability to meet its financial obligations, often referred to as EBITDA. Cash flow is calculated by adding the business net income before interest, taxes, depreciation, and amortization. Net cash flow is equal to cash flow minus debt service and other non-cancelable financial obligations.
Closed-Ended Lease-True lease in which the equipment lessor assumes the depreciation risk. The lessee bears no obligation at the end of the lease. The term is used to distinguish this lease from an open-end lease.
Commitment Letter-Letter prepared by the equipment lessor outlining terms and conditions between the lessee and the lessor for a master equipment lease line of credit.
Conditional Sale-Situation under the income tax provisions whereby the actual user is seen as the owner of an asset for availing the capital allowances.
Corporate Resolution/Incumbency Secretary-Requirement for a corporation to attest that the individual executing an equipment lease or equipment loan agreement on its behalf is duly authorized to do so. On this form, the Corporate Secretary (or other authorized officer) attests that the signatory is empowered, by name of title, to execute lease agreements.
Coterminous-Refers to two or more equipment leases, linked so that both will terminate at the same time. A coterminous addendum can be used to add equipment to an existing lease, adjusting the payments to reflect the addition. Both the original lease and the addendum will terminate at the same time.
Credit Rating-Score/predictor of the ability to pay back a loan. The credit rating is a result of credit scoring.
Credit Report-Financial history supplied by a credit information company like Dun & Bradstreet, Equifax, Experian, and TransUnion. The report contains information on a business/individual, including payment history of bank cards, store cards, mortgages, student loans, trade payments, and other borrowing.
Credit Scoring-Evaluation system used by lending institutions to determine relative credit risk of a business/individual. For businesses, it considers factors such as credit payment history, new credit sought by the business, and the financial strength and longevity of the business. Credit scoring systems typically formulate values assigned to various credit criteria to create a scoring model. Models are then derived from historical portfolio performance with lessees/borrowers of similar type, organizational structure, credit history, size, age, and credit bureau rating, along with other criteria an individual equipment lessor / equipment lender may choose to include.
Cross Corporate Guarantee-Guarantee by one corporation to pay the equipment lease or equipment loan obligations of another corporation, provided that the two share common ownership.
Current Ratio-A finance statistic: Current Assets divided by Current Liabilities.
Dealer-One who provides equipment for sale or rental to end-users. Dealers normally offer equipment leases or equipment finance loan agreements as a financing option for sales of equipment, software, or systems.
Dealer Lease Referral Application and Agreement-Typically a one-page agreement that provides the lessor with information about the equipment vendor. Through 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.
Default-Takes place if a lessee / borrower does not comply with the terms of the lease. Generally, after a default, the lessor / lender can exercise all of its rights under the lease to repossess the property and seek money damages.
Delivery and Acceptance-A verbal authorization and/or document executed by the lessee / borrower indicating that the asset has been delivered, is as appears on the lease or loan and operates to the lessee's / borrower's satisfaction and manufacturer's specifications. This is generally the final document executed by the lessee / borrower and signals the lessor / lender that they may remit payment to the vendor.
Depreciation-Tax deduction representing a reasonable allowance for exhaustion, wear and tear, and obsolescence. Depreciation is usually claimed by the owner of the equipment so that equipment cost can be allocated over an appropriate period of time. It lowers the company's balance sheet assets and is recorded as an operating expense over that extended period.
Direct Financing Lease (Direct Lease)-A non-leveraged equipment lease by an equipment lessor (not a manufacturer or dealer) in which the lease meets any of the definitional criteria of a capital lease, plus certain additional criteria.
Discount Rate-Interest rate used to bring a series of future cash flows to their present value in order to state them in current dollars. Use of a discount rate removes the time value of money from future cash flows.
Documentation-Refers to the leasing or loan terms and conditions set out in written lease or loan agreements, sometimes comprising several different forms. Documentation requirements vary, depending on the type of lease or loan and the particular contractual policies of individual lessors / lenders.
Documentation Fee-Fee charged to the lessee / borrower for the processing of the lease or loan and other insurable costs, which include the UCC filing with the local and state facilities, such as the Secretary of State or County Clerk's office.
Dollar Buyout ($1 Purchase Option aka $1 out)-Option at the end of the equipment lease to buy the leased equipment for $1.
Down Payments-Leases typically do not require down payments; loans usually do require them. Lessees with a minimal or negative credit history may choose to offer a down payment to assist in getting their lease approved.
Dun & Bradstreet-Commercial credit reporting agency that compiles and provides, for a fee, a variety of historical information relating to the management, operating trends, and credit worthiness of business organizations.
EBITDA-Finance statistic calculated by adding the following together: net earnings, interest expense, income tax expense, depreciation, and amortization of intangible assets.
Economic or Useful Life-Time period in which the benefits of ownership/use of an item of equipment can be obtained.
Effective Lease Rate-Rate (to the lessee) of cash flows resulting from a lease transaction. To compare this rate with a loan interest rate, include any effect the transaction has on federal tax liabilities.
Electronic Funds Transfer (EFT)-Wire transfer in which the equipment lessor / equipment lender pays the equipment vendor. At time of funding, this amount is wired to the vendor minus any payments agreed to in the assignment of proceeds.
Early Purchase Option (EPO)-Equipment lease option which allows for a buyout at a specific point in the lease term at a predetermined amount. This amount approximates a payoff-type amount, allowing a known purchase amount within a tax lease.
Equipment-Specific item(s) leased by the lessee as covered by a particular lease agreement. Although not specified in the lease agreement, lessees may be allowed (depending on the lessor) to include many "soft cost" items such as training, installation, and freight.
Equipment Finance Agreement-Agreement containing all the characteristics of a $1.00 buyout equipment lease, and more closely resembles a typical loan agreement. Often used for titled vehicles or other equipment when the borrower wants to retain ownership, or the lender wishes to protect itself from the liability associated with ownership. The borrower owns the asset and the lender takes a security interest in the asset.
Equipment Schedule-Schedule signed by the lessee / borrower which becomes part of the equipment lease or equipment loan agreement. Identifies all assets being leased or financed and generally includes model and serial numbers. It is intended be identical to the equipment vendor's invoices and becomes the defining document in the event of an asset dispute.
Equity Participant-The owner participant, trustor owner, or guarantor owner.
Estimated Residual Value-Calculation for the maximum allowable term and value of a tax-oriented lease, known as the fair market value of the leased equipment at the end of the lease term. It is calculated in constant dollars, excluding inflation or deflation.
Estimated Useful Life-Estimated time period that the leased or financed equipment is expected to be useful. Estimated useful life is used to calculate the maximum allowable term and value of a tax-oriented lease.
Exemption Certificate-Document exempting a lessor / borrower from paying sales tax on the equipment being leased or financed. A lessor / lender may be buying the equipment for resale as would a vendor/supplier, while a lessee may be tax exempt for other reasons, i.e., non-profit entity.
Fair Market Renewal Value-Monthly rental payment for a period of time if the lessee chooses not to purchase the leased asset or to renew the lease once it has initially terminated. The value is typically determined by negotiation between lessee and lessor and represents the Fair Market Rental/Renewal Value.
Fair Market Value Purchase Option-Provision of the equipment lease, allowing the lessee to purchase the leased asset for its true market value. This value is generally determined by an independent, knowledgeable third party. The option is normally exercised at the end of the lease provided the lessee has complied with their responsibilities under the lease.
Fair Market Value-The market value usually referred to at the end of an equipment lease. It is normally determined after considering recent sales of similar equipment, obsolescence, de-installation, resale expenses, etc.
Finance Lease-Refers to a capital lease or non-tax lease of equipment. It is also often called a one-dollar buyout lease because the title to the equipment is passed to the lessee at lease end for $1.00, or another bargain amount.
Finance Lease (Single Investor Lease)-Equipment lease which requires the lessee to remit payment of the rentals which total the cost of the asset plus the lessors required profit. It is non-cancelable. It requires the lessee to pay all taxes and other assessments, to provide insurance, and to maintain the asset according to manufacturer's guidelines. It is anticipated that the lessee will acquire title to the asset at the conclusion of the lease term.
Financial Statements-Accounting statements that provide specific information about a company's financial position. They include the profit & loss statement (also known as the income statement), the balance sheet, and the statement of cash flows. Financial statements are generally audited or reviewed by an outside CPA firm. If not audited, financial statements are referred to as compiled by the company and are considered less reliable than the corresponding income tax returns.
Financing Statement (UCC-1)-Standardized form recorded with the Secretary of State and/or County Clerk to perfect a lien under the Uniform Commercial Code and is considered notification to all interested parties. It is used with many equipment leases and equipment loans to protect the lessor's / lender's interest in the financed equipment.
First Amendment Lease-Gives the lessee a purchase option at one or more defined points with a requirement that the lessee renew or continue the lease if the purchase option is not exercised. The option price is usually either a fixed price intended to approximate fair market value or is defined as fair market value determined by lessor appraisal. It is subject to a floor, ensuring that the lessor's residual position will be covered if the purchase option is exercised. If the purchase option is not exercised, then the lease is automatically renewed for a fixed term (typically 12 or 24 months) at a fixed rental intended to approximate fair rental value. This will further reduce the lessor's end-of-term residual position. The lessee is not permitted to return the equipment on the option exercise date. If the lease is automatically renewed, then at the expiration of that initial renewal term, the lessee has the right either to return the equipment without penalty, or to renew or purchase at fair market value.
Fixed Interest Rate-Rate that remains the same throughout the life of a loan.
Fixed Purchase Option-Ability to purchase the equipment at the end of the equipment lease term for a fixed percent of the original purchase cost. A typical fixed purchase option is 10% of the original purchase cost.
Floating Rental Rate-Rate subject to upward or downward adjustments during the equipment lease term. If the prime interest rate or other benchmark rate changes during the term of the lease, the rental rate may change to reflect this.
Full Payout Lease-Equipment lease in which the total periodic payments exceed the cost of the asset being leased. The lessor recovers, through the lease payments, all costs incurred in the lease plus an acceptable rate of return, without any reliance on the leased equipment's future residual value.
Guarantee (Personal/Corporate/Other)-Business owners (especially in the case of proprietorships, partnerships, closely held corporations, or small businesses) may be required to personally guarantee an equipment lease or equipment finance transaction. At other times, a business may be a subsidiary of another business. Depending on the circumstances, the lessee's / borrower's parent company may be required to guarantee a lease or loan transaction.
Guarantor-Individual or business that promises to perform all of the lessee's / borrower's obligations, including making payments should the lessee / borrower fail to do so.
Guideline Lease-Equipment lease written under criteria established by the IRS to determine the availability of tax benefits to the equipment lessor.
Hell or High Water Clause-Aspect of a lease or loan agreement which requires the lessee / borrower to honor all conditions of the lease / loan regardless of any other fact, including equipment performance or vendor performance.
Incremental Borrowing Rate-Rate the leasing or borrowing customer would have paid if the equipment had been purchased outright rather than leased or financed, determined at the date of the inception of the equipment lease or equipment loan.
Indemnity Clause-Clause in which the lessee / borrower indemnifies the lessor / lender from loss of tax benefits or other anticipated benefits to the lessor / borrower.
Indenture of Trust (Indenture)-Agreement between the owner trustee and the indenture trustee: the owner trustee mortgages the equipment and assigns the equipment lease and rental payments under the lease as security for amounts due to the lenders. It is essentially the same as a security agreement or a mortgage.
Insurance-All lenders require the lessee / borrower to insure the equipment against casualty loss, all risk and damages, and require that the lessee / borrower indemnify the lessor / lender against any liability incurred from the possession, operation, or usage of the equipment.
Interest Rate-Amount charged by a lender for the money borrowed. It can be fixed or variable.
Interim Rent-A one-time daily rental charge for a period of time between the day the equipment is delivered/accepted and the first invoice date. It is a partial payment for using the equipment during a partial month and is billed to the lessee / borrower on the first invoice.
Investment Grade Credit-A lessee / borrower of high credit standing. Technically, the term refers to a company rated highly by one of many recognized credit agencies such as Standard & Poor's.
Lease-Document(s) executed by the owner of the asset (lessor), and the user of the asset(lessee), which details the terms of the lessee's usage and payment.
Lease Agreement-Contractual agreement between the lessor and the lessee that conveys the use of an asset for a specified period of time at a predetermined payment and other specified requirements.
Lease Commencement-Date the equipment is accepted by the lessee as typically evidenced by lessee's verbal authorization and/or execution of an acceptance certificate.
Lease Proposal-Written agreement between the lessor and lessee, outlining the basic terms and conditions of a specific equipment lease transaction. Both parties sign this proposal, and it is normally subject to credit approval by lessor.
Lease Purchase Agreements-Full-payout net leases with a term typically reflecting the equipment's estimated useful life. Because many equipment lease purchase agreements include a bargain purchase option (providing for the purchase of the equipment for $1 at the expiration of the lease), lease purchase agreements often are referred to as dollar-buyout or buck-out leases. Lease purchase agreements are considered capital leases from an accounting perspective, and non-tax leases from a tax perspective, due to their bargain purchase option features and the length of their terms.
Lease Rate Factor-Numerical factor multiplied by total cost of equipment to compute periodic rentals.
Lease Rate (Rental Payment)-Periodic rental payment to a lessor for the use of assets.
Lease Schedule-Schedule attached to a master equipment lease agreement, describing the leased equipment, rentals, lease term, and other applicable terms.
Leasing Line-The maximum amount of funding designated by the lessor for a lessee to use over a fixed commitment period.
Lessee-Party to a lease agreement who is obligated to pay rental installments to the lessor and is entitled to use and possess the leased equipment during the lease term.
Lessor-Party to a lease agreement who has legal or tax title to the equipment (in the case of a true tax lease); grants the lessee the right to use the equipment for the term of the lease and is entitled to receive all rental payments and other requirements.
Level Payments-Equal periodic payments over the term of the lease or loan.
Leveraged Lease-Equipment lease in which a lessor provides an equity portion (usually 20% to 40%) of the equipment cost, and another lender provides the balance on a non-recourse debt basis. The lessor receives the tax benefits of ownership.
Master Lease-Equipment lease in which the parties detail the terms and conditions under which leased assets will be used, but do not address the periodic payment requirements. These requirements are addressed in a separate document which becomes an addendum to the lease. A master lease may have several addenda, each dealing with a separate asset acquisition.
Middle Market (Middle Ticket)-Market segment generally represented by financing under $3 million and predominantly funded by single investor leases and loans.
Municipal Lease-A contract entered into by a state or local government such as a county, city, town or municipal authority.
Net Lease-Equipment lease in which all costs in connection with the use of the equipment, such as maintenance, insurance and property taxes, are paid separately by the lessee and are not included in the lease rental payment made to the lessor. The majority of middle ticket and small ticket equipment leases are net leases.
Off-Balance Sheet Financing-Form of equipment financing not required to be reported on a company's balance sheet. It describes a leasing arrangement that qualifies as an operating lease for the financial accounting purposes of the person /company leasing the equipment. They are not included in the traditional balance sheet asset and debt presentation, except for that portion of each payment due in the current fiscal period. Full disclosure of these transactions is provided in an auditor's notes on financial statements. Periodic payments are recorded as expense items on the income statement of the person /company leasing the equipment.
Open-Ended Lease-Equipment lease with characteristics of conditional sales contracts; contains a guarantee from the lessee that the lessor will realize a minimum amount from the sale of the leased asset at the end of the lease term.
Operating Lease-Equipment lease that meets certain criteria established by the FASB (Financial Accounting Standards Board). It is not required to be shown on the balance sheet of the lessee. It is treated as a true lease (rather than as a loan) for accounting purposes. It is accounted for on balance sheets without showing the equipment as an asset or the lease payment obligations as a liability. Periodic payments are accounted for by lessee as operating expenses for the period.
Payment in advance-Refers to the periodic payments due at the beginning of each period.
Payment in arrears-Refers to the periodic payments due at the end of each period.
Personal Guarantee-Guarantee that the primary owner(s) will assume personal responsibility for repayment of the loan, should the company not repay the loan.
Personal Property Tax-Tax assessed by some counties and some states on the value of real property and equipment. Under most equipment leases, the lessee is billed separately by the lessor for property tax assessed on leased equipment.
Present Value-Discounted value of a payment or stream of payments that will be received in the future, predicated on a specific interest or discount rate. Present value represents a series of future cash flows expressed in terms of today's dollars.
Purchase Option-Provision in an equipment lease allowing the lessee to purchase the leased equipment at the end of the lease term for either a fixed amount or at future fair market value of the leased equipment.
Put Option-Option that commits the lessee to purchase the leased asset for a predetermined amount at the conclusion of the lease term. As with any other option to purchase, if the lessee defaults in their obligations as defined by the lease, the lessor may terminate the lessee's right to purchase.
Purchase Upon Termination Lease (PUT)-Agreement by the lessee to purchase the property at the end of the lease term for a fixed amount.
Recourse Agreement-Agreement with a vendor where the vendor purchases or repurchases the lessor's interest in a lease (usually upon demand), after default of the lessee. Generally, the lease must be in default and a reasonable amount of collection effort must be exerted by the lessor.
Renewal Option-Provision in the lease agreement allowing 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 payments.
Residual Value-Value, actual or expected, of leased equipment at the end/termination of the equipment lease.
Sale-Leaseback-Transaction involving the sale of equipment to an equipment leasing company, and subsequent leasing of the same equipment to the original owner, who continues to use the equipment. This lease is generally used when the lessee desires additional cash for their business. When a sale-leaseback is used, it is likely that the lessee will have to pay income tax on the difference between the sale price of the equipment and the depreciated value of that equipment on the lessee's books. The lessee will also have to pay any applicable sales or use tax.
Schedules-Equipment leases or equipment loans which contemplate multiple items of equipment or equipment delivered over time often use lease or loan schedules in conjunction with a master equipment lease / loan agreement which provides for the basic terms and conditions of the lease/ loan.
Schedule-A document incorporated by reference into the equipment lease agreement describing leased equipment in detail.
Security Deposit-Funds held by the lessor / lender as additional collateral to insure performance, often equal to two lease payments. Deposits may be forfeited by the lessee in the event of a default. 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 left at the end of the lease term and the Lessee has completed all of his or her obligations, the deposit is returned to the lessee or can be applied to the purchase option, if any.
Single Investor Lease-A tax-oriented equipment lease whereby the lessor achieves its desired rate of return through a combination of the rental payments, depreciation, and the fair market value of the equipment at the end of the original lease term. Because of the value of the tax benefit, rental payments will be lower than for a finance lease.
Skip-payment Lease-Equipment lease containing a payment stream requiring the person/company leasing the equipment to make payments only during certain predefined periods of the year.
Small-Ticket-Refers to equipment leasing or equipment financing transactions under $100,000 that are often evaluated for credit approval on an application-only basis.
Soft Costs-Freight, software, labor, consulting services, and other intangible items are frequently defined as soft costs. Many equipment leasing and equipment financing companies only allow a certain percentage of the total transaction to include soft costs. Because these costs can generally not be recovered in case of default, they increase the inherent risk of the lease or loan.
Step-up or step-down-Lease-Equipment lease that provides for a payment stream where individual payments may increase (step-up) or decrease (step-down) at predetermined amounts over the term of the lease.
Stipulated Loss Value-Schedule included in an equipment lease that states the agreed value of equipment at various times during the term of the lease. It establishes the liability of the lessee to the lessor if the leased equipment is lost or rendered unusable during the lease term due to a casualty loss.
Structuring-The act of pulling together many components to arrive at a single lease or loan transaction. Structuring includes, but is not limited to, taking additional collateral (such as real estate or additional equipment), guarantees (personal and/or cross corporate), security deposits and adjusting other terms of the transaction.
Synthetic Lease-Equipment lease structured as a lease for accounting purposes, but as a loan for tax purposes. The structure is used by corporations that are seeking off-balance sheet reporting of their asset-based financing, and who can efficiently use the tax benefits of owning the financed asset.
Tax Lease-Equipment lease in which the lessor takes on the risks of ownership (as determined by various IRS pronouncements) and as owner, is entitled to the benefits of ownership such as tax depreciation. Also referred to as a true lease.
Taxes, Sales/Use/Personal Property-Requirement for the lessee to pay any applicable taxes or fees related to the leased equipment including sales or use tax, or other taxes.
Tax-Exempt Entity-These entities (for federal income tax purposes) include:
Term-Length of time an equipment lease or equipment loan agreement will remain in force and the rules of an agreement, as supplied on a rental or lease contract between the lessee/ borrower and the lessor/ lender. Terms will govern the length of the agreement, rules of proper cancellation, renewal terms, and charges for breach of the contract.
Ticket Size-Cost of equipment being leased or financed. The equipment leasing and financing industry is roughly segmented into small ticket ($0-100K), middle ticket ($100k-$3M), and large ticket (>$3M).
TRAC Lease-Lease which is tax oriented and used exclusively for titled motor vehicles. TRAC derives its name from a clause in the contract: Terminal Rental Adjustment Clause. This clause adjusts the residual value of the vehicle based upon usage.
True Lease-Another term for a tax lease where, for IRS purposes, the lessor qualifies for the tax benefits of ownership, and the lessee is allowed to claim the entire amount of the lease rental as a tax deduction.
Trustee-Financial institution such as the bank or trust company that holds title to or a security interest in leased property for the benefit of the lessee, lessor, and/or creditors of the lessor. A leveraged lease often has two trustees: an owner trustee and an indenture trustee.back_to_top
Uniform Commercial Code (UCC)-System developed and adopted by nearly all states to protect secured parties' security interests in personal property.
Uniform Commercial Code Financing Statement (UCC-1)-Document filed with the Secretary of State and/or other public agencies. It describes for the public record the nature of the relationship between the lessee/ borrower and the lessor/ lender. This filing also describes the asset being leased/ financed and is regarded as the defining record in case of a dispute as to the rightful owner of specific assets.
Upgrade-Term referring to a trade-in of leased or financed equipment, during the term of the lease or loan, for a newer, more advanced model.
Useful life-Sometimes called economic life, useful life refers to the period of time during which an asset is usable and has economic value. To qualify as an operating lease, the property must have, at the end of the lease term, a remaining useful life of 25% of its original estimated useful life. A useful life must be of at least one year.
Variable Interest Rate-Interest rate that changes throughout the life of a loan.
Vendor Leasing-Working relationship between an equipment leasing and financing company and an equipment vendor to provide financing to stimulate the vendor's sales. The equipment financing company leases or conditional sales contracts to the vendor's customers. The vendor financing firm substitutes as the captive finance company of a manufacturer or distributor through the extension of leasing and financing to customers, provisions of credit checking, and performance of collections and operational administration. It is also known as lease asset servicing or a vendor program.
Glossary Disclaimer ---------
This glossary is a practical and easy-to-use guide to equipment financing & leasing terminology and vocabulary. While effort has been made to present accurate and up-to-date definitions, this glossary should be used as a resource, not as an authority. The environment is complex and rapidly changes, and it would be impossible to include every applicable term. Users should refer to standard texts and reference works for more detail.