Equipment Financing Terms
Advance Rental - One or more lease payments necessary to be paid to the lessor at the start of the lease term. A lease commonly paid “in advance” demands the first payment up front. The lessor can negotiate any number of added rentals to be paid in advance with the first month’s rent.
Capital Lease - Type of lease classified and accounted for by a lessee as an acquisition and by the lessor as a sale or financing, if it meets any of these criteria: (a) the lessor transfers ownership to the lessee at the culmination of the lease term; (b) the lease involves an option to acquire the asset at a bargain price; (c) the lease contract is equal to 75 percent or more of the estimated economic life of the property (exceptions for used property leased toward the culmination of its 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 less related investment tax credits kept by the lessor.
Equipment Schedule - A document to detail equipment agreed upon to be leased. It may also note the lease term, commencement date, repayment schedule and locale of the equipment.
Lease - A contract whereby party conveys the use of an asset to another party for a specified period of time at a predetermined expense.
Lessor - The party to a lease agreement who maintains legal or tax title to the equipment, grants the lessee the right to use the equipment for the lease term, and is entitled to the rentals.
Master Lease Line - A contract whereby the lessee leases presently needed assets and is able to purchase other assets under the same basic terms and conditions without negotiating a new contract.
Purchase Option - A provision by which a lessee has the right to acquire the equipment at the end of the lease. The purchase option may be noted at a specified amount or at fair market value.
Sale-Leaseback - A deal wherein equipment is acquired by a lessor from the company owning and using it. The lessor then becomes the owner and leases it back to the original owner, who continues to use the equipment.
True Lease – This is a deal that qualifies as a lease under the Internal Revenue Code. It permits the lessor to claim ownership and the lessee to claim rental payments as tax deductions.
Vendor Leasing - A working relationship between a financing source and a vendor to offer financing to stimulate the vendor's sales. The financing source offers leases to the vendor's customers. The vendor’s leasing firm substitutes as the captive finance company of a manufacturer or distributor through the extension of leasing to customers, provisions of credit checking, and performance of collections and operational administration.