A
Accelerated Cost Recovery System (ACRS)(Modified)
The Tax Reform Act of 1986 established the modified ACRS tax appreciation system
presribing depreciation methods for each ACRS class in lieu of statutory tables. Equipment is assigned among 3, 5, 7, 10, 15 or 20 year classes depending on ADR lives.
Add-On
Equipment added to an existing lease, resulting in an increased
monthly lease payment, for the remaining term of the
lease.
Air/Soft Charges
Non-hardware or other non-liquid acquisition costs of
lessor.
Alterations
Modifications to leased equipment, generally subject to restoration
at the conclusion of the lease.
Annuity
A stream of even (equal) cash flows occurring at regular intervals, such as
even monthly lease payments. An annuity in advance is one which the annuity payment is at the beginning of each period. An annuity in arrears
is one in which the annuity payment is due at the end of each period.
Authorized Signature
A signature by a person authorized by a company to legally
bind the company into a contract (e.g., lease). In a
proprietorship or partnership this is the owner or a
partner. In a corporation, it's a corporate officer.
Amortization
The process of allocating a portion of a leased asset's value to
business expense over the periods benefited.
Automated Clearinghouse (ACH)
A system used to electronically transfer funds through a
clearinghouse facility directly into the payee's bank
account. A direct deposit.
Bankruptcy (Chapters 7, 11 and 13)
The legally declared condition of being unable to pay one's
debts. Bankruptcy Dismissal - Rejection of a bankruptcy
petition by the court.
Base Term
The initial, noncancellable term of the lease used by
the lessor in computing the payment. The base term is the minimum time period during which the lessee has the use
and custody of the equipment.
Basis Point
An incremental charge in interest rate equal to one
hundredth of one full percent of interest.
Broker
A company or person who arranges transactions between lessees
and lessors for a fee.
Budget
Most businesses use "Budgets" to forecast and allocate
expenditures for specific periods of time. Typically, Capital Budgets include allocations for Equipment acquisitions, while
Operating Budgets apply to the periodic expenses incurred in running a business. Often, when Capital Budgets are exhausted, or
have been allocated for other purposes, businesses can use available funds from Operating Budgets to Lease needed equipment.
Since leasing payments are made periodically (i.e. monthly, quarterly or yearly) and are small in comparison to the full outlay
of the Equipment's Purchase Price, businesses' can "stretch" their equipment acquisition power by Leasing.
Buyout
The amount a lessee must pay to the lessor to terminate a lease early.
Usually calculated to include tax recaptures, unpaid property taxes and lost revenues.
Capital Lease
Type of lease classified and accounted for by a lessee as a
purchase and by the lessor as a sale or financing if it
meets the following criteria: (a) the lessor transfers
ownership to the lessee at the end of the lease term; (b)
the lease contains an option to purchase the asset at a
bargain price; (c) the lessee term is equal to 75 percent or
more of the estimated economic life of the property
(exceptions for used property leased toward the end of it's
useful life); or (d) the present value of minimum lease
rental payments is equal to 90 percent or more of the fair
market value of the leased asset. The foregoing is set forth
in the Financial Accounting Standards Board
Capital Budgeting
The process of analyzing projects, such as the acquisition of
new equipment and deciding whether or not the revenue and/or cost savings generated by a specific project are sufficient
to justify the costs of the project.
Capitalize
To record an expenditure that may benefit future periods as an
asset rather than as an expense to be charged off in the period of its occurence.
Carryover
A term describing the postponing of tax loses until they can be
used. Examples include net operating loss and investment tax credit carryovers.
Cash Flow
It is an accounting term that refers to the amounts of cash
being received and spent by a business during a defined period of time, sometimes tied to a specific project.
Casualty Value (see also Stipulated Loss Value Table)
A schedule included in a lease that extablishes the liability of the
leasee in the event the leased equipment is lost or rendered unusable during the lease term because of casualty loss. The casualty
value is the amount that maintains the lessor's yield in the event of casualty.
Closed-End Lease
The lessee is committed only to the stated monthly payments
with no further financial obligation at the end of the
lease.
Collateral
Any property designated as security for the payment of a debt or
for execution of a contract.
Conditional Sale (Time Sale)
A purchase agreement which presumes the customer to be the
owner of the equipment immediately upon signature, provided
all payments/conditions are met. (This contract allows
immediate ownership for tax treatment and gives the seller a
security interest until payments are completed)
Confession of Judgment
A provision in a contract that allows the creditor to apply
to the court for judgment without notice to the debtor.
Corporate Resolution
The corporate resolution identifies those officers
authorized by the board of directors to enter the
cooperation into the lease. This document should be
certified by the corporate secretary or assistant secretary
and may be required for large transactions (over
$75,000.00.)
Credit
The power to obtain money, materials or service by promising to
pay for them at some definite future date.
Credit Bureau Report
A report from a credit service, such as TRW or Equinox,
that summarizes an individual's credit history with retail
establishments and financial institutions.
Credit Investigation
The process of gathering and verifying the references
provided by a prospective lessee, e.g. credit bureau
reports, Dun and Bradstreet reports, bank and trade
references, etc.)
Default
A condition whereby the lessee does not make the payments
as required by the lease contract.
Deferred Taxes
Income tax calculated on book income but not currently due
for payment. Balance is carried on the balance sheet until it is reversed in later years.
Delivery and Acceptance ("D&A")
This document is executed by the lessee after the equipment
has been delivered and installed. The lessee represents that
the equipment works satisfactorily and that the lessor has
performed all its duties under the lease agreement.
Depreciation
An allowable tax deduction that reflects the "using up" of the
service life of equipment. It is a means for a firm to recover the cost of a purchased asset, over time, through periodic deductions or
offsets to income. Depreciation is used in both a financial reporting and tax context, and is considered a tax benefit because
the depreciation deductions cause a reduction in taxable income, thereby lowering a firm's tax liability.
Discharged in Bankruptcy
Order of bankruptcy court which releases the borrower from
debt obligations.
Division
A business unit within a corporation that is not legally
separate from the corporation, which means the assets of the
corporation are available to meet any credit obligations of
the division.
Documentation Fee
A fee charged to the lessee for the processing of the lease
and other insurable costs. (See U.C.C.)
Down Payment
Leases don't require down payments. It is a term used in the context of purchasing an expensive item,
whereby the payment is the initial upfront portion of the total amount due and is usually given in cash at the time of finalizing
the transaction. A loan is then required to make the full payment.
Draft
A written order by one party to another party demanding the
payment of a specified sum of money to a designated third
person.
Dun and Bradstreet
A commercial credit agency that compiles and provides a
variety of information relating to the management, operating
trends and credit worthiness of business organizations for a
fee.
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Equipment Insurance
Most lessors require the lessee to insure equipment
against caualty loss, all risks and require that lessee indemnify the lessor against any liability incurred from the
posession, operation or usage of the equipment.
Equipment Lease
It is a formal transaction when a lessor owns particular
equipment and agrees to permit a lessee to use it. Lease terms typically cover one to eight or more year periods,
depending on the specific equipment's type and usage. Lessores ordinarily offer monthly, quarterly, semi-annual or annual payment
shceduling. Individualized payment structures can be tailored to meet particular Lesee cash-flow and financial needs. Lesee most often
may select specific equipment and the vendor where the equipment will be purchased. The Lessor will then purchase the equipment on
the Lessee's behalf.
Estimated Economic Life
The expected period of time during which the equipment
should be able to function as intended and has economic value.
Estimated Residual Value
The estimated Fair Market Value of leased property at the
end of the lease term.
Executor Costs
Costs such as insurance, maintenance, taxes and third party
guarantees that may be incurred when property is leased.
Exemption Certificate (Tax)
A document exempting a lessor or lessee from paying sales
tax on the equipment being leased for excample, a lessor is
buying the equipment for "re-sale" as would a
vendor/supplier, or a lessee may be tax-exempt due to
non-profit status or because it is a bank.
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Fair Market Value
The value of an asset at the termination of the lease,
often determined by the then agreement between lessor and
lessee, or alternatively by appraisal or open bidding.
Finance Lease
General term applied to most types of equipment leases.
Typically, a finance lease is a full-layout, non-cancelable
agreement, and the lessee is responsible for maintenance,
taxes and insurance. (See also Capital Lease)
Financing Statement
Under the Uniform Commercial Code (UCC), a financing
statement (UCC-1 form) reflects a security interest in, or
claim to, specified personal property. The statement names
the secured party or lessor and the debtor or lessee. When
the financing statement is filed by the secured party or
lessor with the secretary or other appropriate public
office, it becomes public record and protects lien
rights.
Full Payout Lease
A lease in which the payments made to the lessor will
return the cost of the leased asset, plus the cost of
financing and overhead, as well as an acceptable return on
the investment.
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Guarantor
A person or business promising to perform all of the lessee's
obligations - including making payments should the lessee
fail to do so.
Guaranty
A written promise by one party to perform some duty or pay a
debt if another party should fail to do so.
Guarantee
An agreement to obligate one's self for the debt of
another. A guarantee by an individual is called a personal
guarantee; and by a corporation, a corporate guarantee. The
guarantor is obliged to pay the obligation in the event of a
default by the entity being guaranteed. A guarantee is not a
standard requirement, but is required by policy under
certain circumstances (less than three years in business)
and from time to time by the credit officer charged with
approval or rejection of a transaction.
Insurable Value
The value of the leased equipment that is to be insured by
the lessee.
Interim Rent
A charge for the use of a piece of equipment
from its in-service or delivery date, up to the date when
the lease actually starts.
IRS Form1120
Tax return form for a cooperation.
IRS Form 1040
Tax return form for an individual.
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Judgement
A court decision against person, persons or an entity that
grants a specific amount of money or other relief to another
party.
Landlord Waiver
An acknowledgement by the owner of property where leased
equipment is located that the equipment belongs to the
lessor and may be removed or inspected according to the
terms of the lease and will not be considered to be a
"fixture".
Late Charges
A contractual financial penalty that is imposed when the
delinquency of a payment due exceeds the grace period.
Lease
A
contract by which the owner of property (lessor) grants to
another (lessee) the right to possess and use the property
for a specified period of time in exchange for a stipulated
periodic payment (rent).
Lease Assignment
The lessor assigns the lease to another party giving the
assignee the rights, powers, privileges and remedies
specified in the lease.
LeaseFactor
The rate used to determine a monthly payment for a given
equipment cost - usually expressed as a decimal fraction
that is multiplied by the equipment cost (e.g. 0.0360 x
$5,000=$180.00).
Lease Rate
The periodic charge a lessee pays stated as a percentage of
the original cost of the equipment.
Lease Rate Factor
The periodic lease or rental payment expressed as a
percentage (or decimal equivalent) of equipment cost. Used
to calculate payments given the cost of equipment (e.g. A
factor of .0360 on an equipment cost of $5,000.00 requires a
monthly payment of $180.00 (.0360x$5,000.00=$180.00).
Lessee
An individual, partnership, or corporation that pays the
owner (lessor) for the use of an asset, but does not own
it.
Lessor
The
company that owns the equipment and leases it to the
lessee.
Letter of Credit
This is a letter from a bank to a correspondent bank stating
that the person named can draw on the issuing bank's credit
for the amount stated, subject to the conditions
stipulated.
Leverage
An area of financial measurement that can be useful in
determining the degree of protection a company's assets
provide for its creditors.
Line of Credit
An agreement by a lender to provide funds to a borrower up
to a specified maximum amount.
Liquidity
A
firm's ability to meet its short term obligations on a
timely basis and to convert assets to cash quickly and
without loss in value when needed.
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Master Lease
Continuing lease agreement which provides for property
becoming subject to the terms of a single lease over a
period of time. Schedules are added to reflect property
becoming subject to the terms of the master lease.
National Account
A manufacturer or distributor who sells through a dealer
network across the United States.
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Non-appropriation Clause
Contractual provision found in many tax-exempt leases that
provides that if the governmental lessee fails to
appropriate or make available funds to make the lease
payments called for under the agreement for the next
appropriation period, the agreement terminates at the end of
the current appropriation period. Such a clause is used to
prevent lease payment obligations in future years from being
classified as debt. Exercise of the non-appropriation clause
is not an event of default.
Off-Balance Sheet
A leasing or receivable sales transaction in which neither
the asset nor the lease contract or other liability is shown
on the lessee's or seller's balance sheet. A lease is
considered off-balance sheet to the lessee when the
agreement is not a capital lease under the Financial
Accounting Standards Board Statement #13.
Operating Lease
A lease in which a lessee can acquire the use of equipment
for a term that is less than the equipment's useful life.
The lessor may assume certain risks of ownership which may
include personal property taxes, maintenance and insurance
costs. At the expiration of the initial lease, the lessor
depends on the residual value to pay out its investment and
realizes a profit based on the residual value of the
equipment (through either renewals or sale) Note: For
financial accounting purposes, an operating lease does not
meet the Financial Accounting Standards Board Statement #13
criteria of a capital lease.
Over (Highly) Leveraged
Describes a company's financial position when its debt is
excessively high in relation to its equity.
Parent Company
A corporation which owns the controlling voting stock (over
50%) in another corporation.
Partnership
An association of two or more persons as co-owners of a
business operated for profit. (In a General Partnership,
partners share responsibility for any debts; in a Limited
Partnership, debt liability is limited to the amounts
invested by the partners.)
Personal Credit
The credit a retailer, bank or finance company extends to an
individual in connection with the sale of goods or borrowing
of funds.
Present Value
Refers to today's value of money to be received in the
future. (For example, how much is the right to receive
$10,000 in five years worth to you today?)
Prime
A rate of interest that banks charge to their most
creditworthy customers.
Proprietorship
A non-corporation business owned by one person.
Purchase Option
A provision in the lease which gives the lessee the right to
purchase the equipment at the end of the lease for an amount
specified or its future fair market value.
Recourse
An agreement between the lessor and the seller which allows the
lessor to take recovery action against the seller would the
lessee default.
Rental (Use) Tax
Many states charge a "use" tax in lieu of a sales tax when
equipment is leased. Instead of paying a sales tax for
purchase of the leased equipment, taxes are collected by the
lessor as a percentage of the rentals over the lease
term.
Repossession
The process of taking back equipment that is pledged as
security to the lessor, due to non-payment or other
contractual breech by the lessee.
Residual Value
The estimated wholesale market value of the equipment at the
conclusion of the lease.
Robert Morris Association (RMA)
A trade association of bank credit people who set
thestandards for bank credit information.
Sale and Leaseback
A transaction where property is sold to a party on the
condition that it is immediately leased back to the seller.
(Can be an attractive method for the owner of a capital
asset to raise working capital.)
Sales/Use Tax
A state tax on leased equipment based on the amount of the
monthly lease payment.
S Corporation
A corporation in which five or fewer individuals own at
least 50% of the stock, with the same legal rights of a
corporation except from a tax standpoint.
Securitization
The packaging of lease receivables into an investment
grade security as an alternative funding source.
StandardIndustrial Classification (S.I.C.)
The federal system of coding businesses according to
industry type.
Skipped Payment Leases
A lease designed to enable the lessee to skip payments
during a portion of the year when the leased equipment is
idle because of adverse weather conditions or other
factors.
Statement #13 (FASB No. 13)
(See Finance Lease.)
Statement #13 (FASB No. 13)
(See Finance Lease.)
Step Payment Lease
A lease in which the monthly payment either increase
(step-up) or decreases (step-down) to a pre-determined
amount over the term of the lease.
Subsidiary
A company owned by another corporation.
Tax Lien
A legal claim imposed by a Federal, State or County agency in
lieu of non-payment of taxes.
Trade-Up/Upgrade
Exchanging equipment and entering into a new lease
obligation.
Treasury Note
An obligation of the U.S. government with a maturity of one
to five years. (The yield on this note serves as a basis for
funding costs.)
True Lease
An obligation of the U.S. government with a maturity of one
to five years. (The yield on this note serves as a basis for
funding costs.)
Uniform Commercial Code (U.C.C.)
A compilation of statutory provisions designed to simplify,
clarify and modernize the law governing commercial
transaction; to permit the continued expansion of commercial
practices through custom, usage and agreement of the
parties, and to make uniform the law among various
jurisdictions. Note: A minority of states adhere to the 1962
version of the U.C.C. while others have adopted the 1972
amendments. Louisiana, which still adheres to the Civil
(Napoleonic) Code, has not adopted the U.C.C.
U.C.C. Filing Fee
A fee charged for processing and filing a U.C.C. - 1 or
U.C.C. 3.
U.C.C. 3
The form used to formally terminate the record of security
interest in a piece of commercial equipment.
Useful Life
The period of time during which an asset will have economic
value and be usable. (Also called "economic life")
Wire Transfer
The transfer of funds from one party to another through the
Federal Reserve banking system.
Working Capital Lease
A financial arrangement in which commercial equipment is
purchased from and leased back to the owners. Additional
capital funding is made available to lessee (e.g. for
business improvement or reinvestment purposes) over and
above the price of the equipment leased.
Workout
Process by which a lessor, following unsuccessful collection
efforts, attempts to compromise or otherwise settle the
delinquent account prior to taking legal action.
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