A B C D E F G H I J K L M N O P Q R S T U V W X Y Z
A type of multi-year tax-exempt
lease whereby the Lessee can commit to making lease payments
for the entire lease term unless the leased asset is not available
for use, in which case abatement occurs. (This contrasts with
a tax-exempt lease with a non-appropriations clause.)
One or more of the lease
payments that are required to be paid to the Lessor at the
beginning of the lease term. Lease structures commonly require
one payment to be made in advance.
Alternative Minimum Tax (AMT)
The Tax Reform
Act of 1986 substantially modified the Alternative Minimum
Tax, which must be calculated for all taxpayers. The AMT is
a penalty tax of sorts, as a taxpayer must pay the higher of
its regular tax or AMT liability. The corporate AMT rate will
be applied to a different, typically higher, taxable income
than for regular taxes. This is why the AMT liability may be
The item of personal property being
acquired by the Lessee through payments over a period of time
pursuant to the lease.
Providing for the timely
and proper maintenance, tracking and disposition of one's lease
Assign / Assigning / Assigned Lease
common funding technique where a leasing company exchanges,
or assigns, its rights to the future lease payments in a lease
to a funding source, in return for upfront cash. This cash
represents the amount of the loan, and is equal to the present
value of the future lease payments. A lease that has been assigned
to a funding source is called an assigned lease. Synonymous
with Discount/Discounting/Discounted Lease.
Being exposed to potential loss.
Bank-Affiliated Leasing Company
of a bank or bank holding company that is active as a Lessor,
frequently acting both as Lessor, lease broker and/or underwriter.
Under current provisions of
the Internal Revenue Code (IRC), commercial banks can deduct
80% of their interest costs on funds used to acquire or "carry" tax-exempt
obligations (bonds and leases) of governments that borrow no
more than $10,000,000 in a calendar year; otherwise, the interest
cost is not deductible by the bank.
Bargain Purchase Option
A lease provision
allowing the Lessee, typically at its option, to purchase the
leased property at the end of the lease term for a price which
is sufficiently lower than the expected fair market value of
the property, such that exercise of the option appears, at
the inception of the lease, to be reasonably assured.
A lease that includes many
additional services such as maintenance, insurance and property
taxes that are paid for by the Lessor, the cost of which is
built into the lease payments. Synonymous with Full-Service
A purchase made to acquire
the ownership of property, plant and/or equipment. Typically,
these types of expenditures do not take place until after a
lengthy capital budgeting review and approval process has occurred.
Capital Expenditure Funds
Funds that have
been appropriated, through the capital budgeting process, to
purchase property, plant and/ or equipment.
From a financial reporting
perspective, a capital lease is one that has characteristics
of a purchase agreement, and also meets certain criteria established
by the FASB. Such a lease is required to be shown as an asset
and related obligation (capitalized) on the balance sheet of
Captive Leasing Subsidiary
A finance organization set up by an equipment manufacturer,
or dealer, to finance its products to end-users, usually with
the objective of increasing the sales of the manufacturer.
Such an entity is usually wholly-owned by the manufacturer
A leasing company which has been set up by a manufacturer
or dealer to finance its own products.
Certificate of Delivery and Acceptance
A document that is signed by the Lessee to acknowledge that
the equipment to be leased has been delivered and is acceptable.
Many lease agreements state that the actual lease term commences
once this document has been signed.
A Lessee in which the lease agreement does
not contain a purchase or renewal option, thereby requiring
the Lessee to return the equipment to the Lessor at the end
of the initial lease term.
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 (thereby being entitled to the
tax benefits of ownership, such as depreciation), but may not
become the legal owner of the asset until all terms and conditions
of the agreement have been satisfied.
Consolidated Parent Company
The parent company (the manufacturer or dealer
in a leasing context) combined with its many subsidiaries.
A parent company can be combined with its subsidiaries for
tax and/or financial purposes.
The failure of the Lessee to pay payments
(or other sums due) or meet obligations when due under the
lease or failure to observe a representation or warranty in
the lease or violation of a covenant in the lease, and the
expiration of applicable periods to cure the default. An event
of non-appropriation or abatement is not normally considered
an event of default, even when the remedies are substantially
similar for each event.
Means for a firm to recover the cost of a
purchased asset, over time, through periodic deductions or
offsets to income. Used in both a financial reporting and tax
context. Considered a tax benefit because the depreciation
deductions cause a reduction in taxable income, and therefore,
the firm may experience a lower tax liability.
Discount / Discounting / Discounted
See Assign/Assigning/Assigned Lease.
A certain interest rate that is used to bring
a series of future cash flows to their present value in order
to state them in current, or today's, dollars. Use of a discount
rate removes the time value disposition of money from future
Disposing / Disposal / Disposing
The eventual sale or salvage of leased equipment
upon its return to the Lessor.
When the Lessee returns the leased equipment
to the Lessor prior to the end of the lease term, as permitted
by the original lease contract or subsequent agreement. At
times this may result in a penalty to the Lessee.
Options stated in the lease agreement that
give the Lessee flexibility in its treatment of the leased
equipment at the end of the lease term. Common end-of-term
options include purchasing the equipment, renewing the lease,
and returning the equipment to the Lessor.
Lease payments that are equal in amount from
period to period. Also referred to as level payments.
A document, typically incorporated by reference
into the lease agreement, which describes in detail the equipment
being leased. The schedule may state the lease term, the commencement
date, the repayment schedule, and the location of the equipment.
A specific description of a piece of equipment
that is to be acquired, which could include, but not be limited
to equipment make, model, configuration, capacity requirements
and so forth.
An option that allows the Lessee to add equipment
to an existing piece of leased equipment in order to increase
its capacity or improve its efficiency.
Funds invested in a lease by the Lessor, as
contrasted with any debt or borrowings.
The equity monies that are used in a lease
transaction by the equity investor to partially pay for the
leased equipment. The balance will be paid through some form
Equity Investor / Equity Participant
An entity that provides equity funding in
a lease transaction and thereby becomes the owner of the leased
equipment and ultimate Lessor.
Fair Market Value
The value of a piece of equipment if the equipment
were to be sold in a transaction determined at arm's length,
between a willing buyer and a willing seller, for equivalent
property under similar terms and conditions.
An expression often used in the industry to
refer to a capital lease or a non-tax lease.
Financial Accounting Standards Board
The rule-making body that establishes financial
A lease in which the Lessor recovers, through
the lease payments, all costs incurred in the lease plus an
acceptable rate of return, without any reliance upon a future
See Bundled Lease.
Refers to the manner in which a piece of leased
equipment has been funded, or paid for, by the Lessor.
An entity that provides any part of the funds
used to pay for the cost of the leased equipment. Funds can
come from either an equity-funding source, such as the ultimate
Lessor in a lease transaction, or debt-funding source, such
as a bank or other lending institution.
Guaranteed Residual Value
When the Lessee or an unrelated third party
(i.e. equipment manufacturer, insurance company) guarantees
to the Lessor that the leased equipment will be worth a certain
fixed amount at the end of the lease term. The guarantor agrees
to reimburse the Lessor for any deficiency realized if the
leased equipment is subsequently salvaged at an amount below
the guaranteed residual value.
The beginning of the lease term.
Independent Leasing Company / Independent
A type of leasing company which is independent
of any one bank, credit corporation or manufacturer and, as
such, may purchase equipment from various unrelated manufacturers.
The equipment is then leased to the end-user, or Lessee. The
independent Lessor may be an investor using its own funds or
it may be a lease broker using funds received from other investors.
Also termed Third Party Lessor.
The party that provides the funds to pay for
the leased asset.
Revenue Rulings, Revenue Procedures, case
law and other miscellaneous documents which contain the Internal
Revenue Service's interpretation and comment on federal income
tax law as contained in the Internal Revenue Code, as set forth
An agreement in which one party, the Lessor
or owner of the equipment, permits another party, the Lessee,
to use the equipment for a specified period of time, in exchange
for a series of payments.
The process whereby a leasing company purchases
or acquires a lease from a lease originator, such as a lease
broker or another leasing company.
An important step of the lease process occurring
throughout the duration of the lease, in which the Lessor,
or subcontractor, provides for lease tracking, billing, collections,
financial reporting, UCC filings and so forth.
The contractual agreement between Lessor and
Lessee which sets forth all of the terms and conditions of
An entity which provides one or more services
in the lease transaction, but which does not retain the lease
transaction for its own portfolio. Such services could include
finding the Lessee, working with the equipment manufacturer,
securing debt financing for the Lessor to use in purchasing
the equipment, and locating the ultimate Lessor, or equity
participant, in the lease transaction. Also referred to as
The many written forms which evidence the
lease transaction, including but not limited to the lease agreement,
purchase order assignment, and equipment schedule(s).
Lease Line of Credit
An arrangement that allows a Lessee to make
periodic withdrawals from a line of credit established to finance
The process of uncovering (through a sales
force), developing and consummating new lease transactions.
Steps in the process could include, but are not limited to,
prospecting for new lease business, pricing potential transactions,
credit review, and documentation.
Periodic payments paid by the Lessee to the
Lessor in a lease transaction.
An arrangement whereby a number of unrelated
tax-exempt leases are grouped together for purposes of a single
public offering. The governments are usually similar in nature
(i.e. school districts) and are brought together through some
common interest association. The lease pool is different than
a master lease which groups the leasing needs of several departments
or agencies in a single issuer/lessee, such as a state or county.
Lease Renewal Option
An option in the 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 payments.
The fixed, non-cancellable term of the lease
during which time the Lessee has an obligation to make rental
payments. The lease term should coincide with or be shorter
than the useful life of the asset being leased.
Lease Revenue Bond
A bond having as its repayment source a lease
to which project revenues have been pledged for making regular
payments, although the source of lease payments may also include
General Fund revenues. Also referred to as lease-backed revenue
Lease Versus Buy
A comparison of the costs incurred in obtaining
the use of an asset for a specific period of time through either
leasing or purchasing. Costs are typically compared on an after-tax,
present value basis.
A financing method used to acquire the use
of an asset for a specified period of time, in exchange for
periodic rental payments.
See Captive Leasing Subsidiary.
The end-user of the leased equipment, who
remits periodic payments to the Lessor in exchange for the
use of the leased equipment over a specified period of time.
The amount of the future residual value that
has been guaranteed by the Lessee.
Lessor / Leasing Company
The owner and provider of equipment being
leased to a Lessee, or end-user, in a lease transaction.
See Equal Payments.
Indebted. Refers to the amount of debt in
a transaction or lease company. A firm becomes more leveraged
as it uses more borrowed funds, relative to equity infusions,
to finance its operations.
A specific form of lease involving at least
three parties: Lessor, Lessee and funding source. The Lessor
borrows a significant portion of the equipment cost, typically
on a non-recourse basis, by assigning the future lease payment
stream to the lender in return for up-front funds. The Lessor
puts up a minimal amount of its own equity funds (the difference
between the equipment cost and the present value of the assigned
lease payments) and is generally entitled to the full tax benefits
of equipment ownership.
An agreement whereby the Lessee contracts
with another party to maintain and/or repair the leased property
during the lease term, in exchange for a payment or series
A lease line of credit that allows a Lessee
to obtain additional leased equipment under the same basic
lease terms and conditions as originally agreed to, without
having to renegotiate a new lease contract with the Lessor.
Master Lease Agreement
The contractual agreement between Lessor and
Lessee in a master lease transaction. The agreement would typically
set forth basic lease terms and conditions, the period of time
that the agreement is in force, the maximum dollar amount that
can be used during this timeframe, and provide for when and
how the lease rate(s) will be fixed.
The end of the lease term, assuming that all
of the obligations contained in the lease agreement have been
A conditional sales contract in the guise
of a lease in which the Lessee is or will become the owner
of the leased equipment by the end of the lease term and, therefore,
is entitled to the tax benefits of ownership such as depreciation.
Generally, a conditional sales contract disguised
in the form of a lease, available only to municipalities, in
which the interest earnings are usually tax-exempt to the Lessor.
A lease in which all costs in connection with
the use of the equipment, such as maintenance, insurance, and
property taxes, are separately paid for by the Lessee, and
are not included in the lease rental paid to the Lessor.
A type of borrowing in which the borrower
(or Lessor in our context) is not at-risk for the borrowed
funds. The lender is expecting repayment from the Lessee and/or
the salvage value of the leased equipment; hence, the lender's
credit decision will be based upon the creditworthiness of
the Lessee, as well as the expected salvage value of the leased
A type of lease in which the Lessee is, or
will become, the owner of the leased equipment and, therefore,
is entitled to all the risks and benefits (including tax benefits)
of equipment ownership. Also referred to as a Money-Over-Money
Off Balance Sheet Financing
Any form of financing, such as an operating
lease, which, for financial reporting purposes, is not required
to be reported on a firm's balance sheet.
A budget that lists the amount of goods and
services the firm is authorized by management to expend during
the operating period.
From a financial reporting perspective, a
lease that has the characteristics of a usage agreement, and
also meets certain criteria established by the FASB. Such a
lease is not required to be shown on the balance sheet of the
Lessee. The term is also occasionally used to refer to certain
leases in which the Lessor has taken a significant residual
position in the lease pricing and, as such, must salvage the
equipment for a certain value at the end of the lease term
in order to earn its rate of return.
Originate / Origination / Originator
To uncover and consummate new lease transactions.
A firm engaged in origination activities would be termed an
See Lease Broker.
When the Lessee purchases the leased asset
from the Lessor prior to the end of the lease term.
Payments in Advance
A payment stream in which each lease payment
is due at the beginning of each period during the lease.
Payments in Arrears
A payment stream in which each lease payment
is due at the end of each period during the lease.
A funding technique used by Lessors in which
several forms of borrowing are pooled, or grouped, for use
in funding leases and are not specifically tied to the purchase
of one specific piece of leased equipment.
The entire group of leases in which a Lessor
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. Represents a series of
future cash flows expressed in today's dollars.
Structuring a lease transaction to arrive
at the periodic rental amount to charge a Lessee. A Lessor
must factor in many pricing variables, which may include lease
term, Lessor targeted yield, security deposits, residual value
and tax benefits.
A Lessor's indication to a Lessee as to the
approximate terms and conditions of a proposed lease financing,
which typically includes the lease payment amount, lease term,
fees, deposits, and so forth. A proposal is not binding on
Lessor or Lessee, as it is typically subject to Lessor credit
An option in the lease agreement which allows
the Lessee to purchase the leased equipment at the end of the
lease term, and which is stated at either a fixed amount or
at the future fair market value of the leased equipment.
Purchase Order Assignment
A document which transfers all rights contained
in a purchase order for equipment (i.e. to purchase the equipment
at a certain price, with certain terms) from the Lessee to
the Lessor, enabling the Lessor to purchase the equipment from
the manufacturer and lease it to the Lessee.
Rate of Return
Earnings of an investment, typically stated
on an annualized basis as a percent of investment.
A type of borrowing in which the borrower,
or Lessor, is fully at-risk to the lender for repayment of
the obligation. The recourse borrower, or Lessor, is required
to make payments to the lender whether or not the Lessee is
fulfilling its obligation under the lease agreement.
Refundable Security Deposit
An amount paid by the Lessee to the Lessor
as security for fulfillment of all obligations outlined in
the lease agreement, which is subsequently returned to the
Lessee once all obligations have been satisfied. Security deposits
are typically refunded at the end of the lease term but, according
to mutual agreement, can be refunded at any point during the
The process of selling or leasing the leased
equipment to another party at the end of the lease term. The
Lessor can remarket the equipment or contract with another
party, such as the manufacturer, to remarket the equipment
in exchange for a remarketing fee.
The fee received by an entity for selling,
or leasing, a piece of leased equipment at the end of the lease
See Lease Renewal Option.
Request for Proposal (RFP)
A document outlining the Lessee's general
and specific lease financing needs that is sent to various
Lessors requesting that they prepare and submit a lease proposal.
The request may include equipment specifications, length of
term, and end-of-term options.
See Residual Value.
The amount of residual value built into the
lease pricing. In other words, the residual value amount for
which the Lessor is at-risk, and must receive at lease termination
in order to earn its pre-targeted rate of return.
The value, either actual or expected, of leased
equipment at the end, or termination, of the lease.
Residual Value Guarantee
A guarantee, obtained by the Lessor from another
party, that the residual value will be worth a certain preset
amount at the end of the lease term.
To keep a lease transaction or investment
for one's own portfolio, and not sell it off to another Lessor
The expected or realized value from selling
a piece of equipment at a specific point in time.
See Equipment Schedule.
See Refundable Security Deposit.
A lease in which the Lessor is fully at-risk
for all funds (both equity and pooled funds) used to purchase
the leased equipment. Pooled funds consist of borrowings from
a variety of sources, normally on a recourse basis.
A lease that contains a payment stream calling
for payments only during certain periods of the year.
Small Ticket Market
That portion of the overall leasing marketplace,
which concentrates on leasing lower-, priced equipment. The
cut-off point between the small ticket and middle markets ranges
from $25,000 to $100,000, depending upon individual firms'
The difference between the funding cost and
the rate of return to the Lessor in a lease. The spread should
be sufficient to cover all costs plus a return to the investor.
A lease that consists of declining or decreasing
lease payment amounts over the term of the lease.
A lease that contains a payment stream calling
for payments that either increase or decrease in amount over
the term of the lease.
A lease that consists of increasing lease
payment amounts during the lease term.
To consider the many components of a potential
lease transaction, such as lease term, Lessor yield, end-of-term
option(s), security deposits, repayment structure, and so forth,
to arrive at a periodic payment to charge a Lessee.
Terminal Rental Adjustment Clause, which is
essentially a Lessee-guaranteed residual value for vehicle
A type of tax lease containing a TRAC, which
is designed for the vehicle leasing industry as it can only
be used when leasing automobiles, trucks, or trailers.
A flexible lease option in which the Lessor
replaces existing leased equipment with either different or
Not subject to taxation.
Tax-Exempt User Lease
A type of tax lease available to tax-exempt
or not-for-profit entities, in which the Lessor receives only
limited tax benefits.
A lease in which the Lessor takes on the risks
of ownership (as determined by various IRS pronouncements)
and, as such, is entitled to the benefits of ownership, including
The end of the lease term and completion of
An independent leasing company, or Lessor,
with the three parties being: 1) the unrelated manufacturer;
2) the independent Lessor; and 3) the Lessee.
A captive Lessor, with the two parties being:
1) the consolidated parent and captive leasing subsidiary;
and 2) the Lessee or end-user of the equipment.
UCC Financing Statement
A document, under the Uniform Commercial Code
(UCC), filed with the Secretary of State (and sometimes the
county) to provide public notice of a security interest in
Unguaranteed Residual Value
The portion of residual value for which the
Lessor is "at-risk". The Lessor takes on the risk that the
equipment mayor may not be worth this expected value at the
end of the lease term.
Fees collected from the Lessee by the Lessor
at the inception or commencement of the lease.
See Equipment Upgrade.
A contract or agreement that conveys the intent
of usage (versus purchase) by one party of another party's
Lessor's rate of return in a lease investment.