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Glossary



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Glossary

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Acceptance Certificate: A certificate signed by an authorized signer signifying the equipment has been delivered on a certain date. A letter instructs the lessor to pay the vendor. Also called a D & A (Delivery and Acceptance Certificate).

Add-ons: Features and enhancements that may be installed on leased equipment.

Additional Insured: In insurance, a person, other than the one named as the insured in an insurance policy, who is also protected against loss, either by being specifically listed as an additional insured, or by definition according to the terms of the policy. Additional insured endorsements are a formal part of liability coverage only.

ADR System: A tax depreciation system that establishes the minimum, midpoint and maximum number of years, by asset category, over which an asset can be depreciated. The midpoint life has become synonymous with the term "ADR class life."

Advance Payments: One or more lease payments 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. This term also refers to leasing arrangements in which the lease payment is due at the beginning of each period. The Lessee makes his payment at the first of the month and then is granted use of that equipment for the entire rest of the month until his next due date and so on.

Advance Rental: Any payment in the form of rent made before the start of the lease term. The term also is used to describe a rental payment arrangement in which the lessee pays each rental, on a per period basis, at the start of each rental payment period.

Agreement: In law and business usage, a mutual understanding between two or more persons involving consideration. An agreement exists when one party has made an offer and the other party has accepted the offer. An agreement enforceable by law is a contract.

All Risk Insurance: A form of insurance protecting property from loss or damage from all causes such as fire, theft, malicious mischief, flood, earthquake and lightning. In comparison, All Risk Insurance provides much broader coverage than comprehensive insurance. Also referred to as property insurance.

Assessed Value: The value of equipment as determined by a taxing authority for the purposes of assessing personal property tax.

Asset: In law, a part of the goods or property both real and personal, belonging to a person. In a business, anything of value, which is owned by a business organization whether tangible or intangible and which can be applied, directly or indirectly, to cover the liability of the business. There are various types of assets such as active, actual, available, capital, cash, current, deferred, fixed and intangible.

Asset Class Life: The updated ADR midpoint life as modified by the 1986 Tax Reform Act. An asset class life represents the IRS designated economic life of an asset and is used as the recovery period for alternative tax depreciation computations.

Assign: To transfer or exchange future rights. In leasing, the right to receive future lease payments in a lease is often transferred to a funding source, in return for up-front cash. The up-front cash represents the loan proceeds from the funding source, and is equal to the present value of the future lease payments discounted at the leasing company's cost of borrowing. A lease assigned by the lessor to a funding source is called an assigned lease. The assignment of leases is a very common funding technique used by leasing companies.

Assignees: Any person to whom some right or interest has been assigned or transferred; one who receives an assignment.

Assignment: A transfer of real or personal property or of a right or interest. Specifically, it is a transfer of a total interest. In purchasing of equipment for example, often times the lessor will take an Assignment of the purchase agreement previously entered into between a vendor and a lessee. In this case, the lessor becomes the assignee and all terms and conditions of that Purchase Agreement are assigned to the lessor/assignee.

Assignment Provision: A provision within a lease agreement that allows either, neither or both parities of a lease transaction to deliver the obligation to a third party in return for immediate compensation.

Assignor: The person who makes an assignment, or who transfers some right, interest or property that he holds to another. The lessee becomes the assignor.

Assumption: The act of taking on the debts, obligations and benefits of a contracting party under a lease agreement. Credit must approve the assumption of an existing transaction. The party whose debts, obligations and benefits under the lease are being assumed may be liable on the transaction if the assuming party defaults under the lease.

Assured: In insurance, the person to whom an insurance policy is issued and payable. The lessee is the assured party. The lessee, or the assured, is the person who has subscribed to the coverage and pays the premiums. An insurance policy is always made out to the assured. A person named in that policy, i.e., as an additional insured or loss payee is known as the insured.

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Balance Sheet: A statement of the assets and liabilities of a business at a given time, as distinguished from an income statement, which reports what has happened over a period of time. More specifically, it is a tabular statement or summary of debit and credit balances carried forward after an actual closing of the books.

Balloon Payment: A large payment at the end of the loan allowing smaller payments to be made during the term.

Bargain Purchase Option: A lease provision allowing the lessee, at its option, to purchase the leased equipment for a price sufficiently lower than the fair market value of the property, such that the exercise of the option appears, at the inception of the lease, to be reasonably assured. If this is truly an option, then it is considered to be a Conditional Sales contract.

Bargain Renewal Option: A lease provision allowing the lessee, at its option, to extend the lease for an additional term in exchange for periodic rental payments sufficiently less than fair value rental for the property, such that the exercise of the option appears, at the inception of the lease, to be reasonably assured.

Base Term: The initial, non-cancelable 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: One one-hundredth of a percent (.01%).

Buyout: The amount a lessee must pay the lessor to terminate a lease early. Usually calculated to include tax recaptures, unpaid property tax and lost revenues.

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Capital Lease: A transaction that FASB views as a sale of equipment by Lessor and a purchase of equipment by Lessee. The lease has the characteristics of a purchase agreement, and also meets any of the following criteria established by FASB 13: a) the lease transfers ownership to the lessee at the end of the lease term; b) the lease contains an option to purchase property at a bargain price, c) the lease term is equal to 75% or more of the estimated economic life of the property (exceptions for used property leased toward the end of its useful life) or d) the present value of minimum lease rental payments is equal to 90% or more of the fair market value of the leased property less related ITC retained by the lessor. Such a lease is required to be shown as an asset and a related obligation on the balance sheet of the lessee. Also known as Conditional Sales Agreements.

Cash Flow: A measure of an organization's liquidity that compares cash inflows and outflows. Often shown by adding non-cash expenses to net income.

Certificate of Delivery and Acceptance (D & A): A document signed by the lessee to acknowledge 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.

Certificate of Incorporation: A statement filed, under the laws of the particular state, by persons wishing to form a corporation. When a Certificate of Incorporation has been property filed with/and approved by the secretary of state or other appropriate officers of the state, it is commonly known as the corporation charger or its Articles of Incorporation, both of which contain the same information.

Certificate of Insurance: A written statement to the effect that an insurance policy has been written covering a particular risk and containing a summary of the terms of the policy. In financing each customer is required to have his insurance agent provide us with evidence of his insurance coverage by forwarding a Certificate of Insurance.

Chattel Paper: A writing or writings evidencing a monetary obligation and a security interest or lease of specific goods, together with any instrument or series of instruments evidencing the transaction. For a loan, the chattel paper consists of at least the promissory note and the related security agreement. For leases, chattel paper consists of the lease. In each case, chattel paper also includes other instruments evidencing the obligation to pay that are ordinarily transferred by delivery with any necessary endorsement or by assignment.

Collateral: Equipment or other tangible assets such as a house, car or securities pledged by the lessee to the lessor to minimize the risk of default.

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 (and is entitled to the tax benefits of ownership such as depreciation). The lessee does not become the legal owner of the asset until all terms and conditions of the agreement have been satisfied. The conditional sales contract contemplates that at some time the title to the property shall pass and that the purchase price will be paid.

Contract: In law, an agreement between two or more persons to do or not to do a specified thing in exchange for proper consideration. Also, the written evidence of such an agreement. To be enforceable under law, a contract must have: a) an expression of mutual agreement to do or not to do something, b) an offer and an acceptance by some word or act, c) competent parties, and d) agreeable by law (If a contract is made to do something that is criminal or wrongful to others, the contract is unenforceable).

Corporate Name: Before a non-corporate business becomes incorporated, it must file with the state in which it intends to do business and under the corporate name it intends to use. When identifying a lessee's true and correct corporate name, it is a must that every comma, abbreviation and spelling be properly typed on all lease documents, because there are literally millions of companies.

Corporate Resolution: A document signed by a registered corporate officer, designating company representatives who may sign leases.

Covenant and Condition: A formal and binding agreement or promise between two or more parties for the performance of some action, usually contained in a lease agreement.

Credit: Broadly speaking, the ability to borrow money or the ability to transact business on the promise of future payment. A person is said to have "good credit" when he can borrow money without pledging collateral. A company's credit is based on its solvency and on its past reputation for reliability in the payment of debts. There are many factors taken into account before a decision as to whether or not a "credit" is considered good or bad such as company management, cash flow, assets and liabilities.

Credit References: Banks and suppliers used in the lessee's business and listed on the lease applications. Lessor will contact them to check lessee payment habits.

Credit Scoring: An objective method of quantifying credit worthiness by assigning numerical values based on meeting established credit criteria.

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Debt-to-equity Ratio: Financial term comparing total liabilities to equity consisting of retained earnings and contributed capital.

Default: A condition whereby the lessee does not uphold the terms of the agreement. Typically it is a result of non-payment.

Depreciable Basis: The amount on which tax depreciation is computed. Typically the depreciable basis of an asset will equal its cost. However, differences between depreciable basis and cost may arise for several reasons such as the investment tax credit and tax like-kind exchanges.

Depreciation: The decline in value of a tangible asset such as equipment, due to age and to the normal wear and tear of use. 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.

Direct Financing Lease: A lessor capital lease (per FASB 13) that does not give rise to manufacturer's or dealer's profit (or loss) to the lessor.

Directors: A Board of Directors manages the affairs of an enterprise. The Board is elected by the stockholders of a corporation to manage the affairs and set the general policies. Customarily, the President, Vice President, Secretary and Treasurer of a Corporation are considered the directors who constitute the Board of Directors.

Discount Rate: An interest rate 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 of money from future cash flows.

Discounted Lease: A lease in which the lease payments are assigned to a funding source in exchange for up-front cash to the lessor.

Dunn and Bradstreet (D & B): A financial company that provides credit information in the U.S.

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Early Buyout Option (EBO): Structured as a true lease with the exception that a lessee has a one-time option during the term of the lease to purchase the asset for a stipulated amount.

Early Termination: Occurs 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.

Economic Life of Leased Property: The estimated period during which the property is expected to be economically usable by one or more users, with normal repairs and maintenance, for the purpose for which it was intended at the inception of the lease. This information is important when determining residuals.

Effective Interest Rate: The interest rate in a lease stated on an annual basis. The rate includes the compounding effect of interest during the year.

End-of-term Options: 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 or returning the equipment to the lessor.

Equipment Schedule: A document incorporated by reference into the lease agreement that describes in detail the equipment being leased. The schedule may state the lease term, commencement date, repayment schedule and location of the equipment.

Equipment Specifications: A specific description of a piece of equipment that is to be acquired, including, but not limited to, equipment make, model, configuration and capacity requirements.

Evergreen Leases: A lease that self-renews each year unless the lessee gives notice of its termination within a specified period of time.

Exemption Certificate: An exemption certificate is used when a company purchases equipment for exempt use as defined by each taxing jurisdiction. In order to be relieved from collecting sales tax on a lease, we must obtain a valid exemption certificate from the customer.

Extensions: The process of forgiving a specific monthly rent in return for an extension fee and the lessee's promise to pay at a later date.

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Fair Market Value (FMV): 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 and under similar terms and conditions.

Fair Market Value Cap: A high-end limit on a FMV lease that protects the lessee's upside risk for executing the residual at the end of the lease.

Fair Market Value Purchase Option: A lessee option to purchase leased property at the end of the lease for fair market value at that time.

Fair Rental Value: The theoretical amount of periodic rental that should be paid for an asset. Used by the IRS as a guideline.

FASB 13: Financial Accounting Standards Board Statement No. 13, "Accounting for Leases," FASB 13, along with it various amendments and interpretations, specifies the proper classification, accounting and reporting of leases by lessors and lessees.

Finance Lease: An expression oftentimes used in the industry to refer to a capital lease or non-tax lease.

Financial Accounting Standards Board (FASB): The rule-making body that establishes financial reporting guidelines for commercial enterprises.

Financing Statement: A notice of a security interest filed under the Uniform Commercial Code (UCC).

Fixed Purchase Option (FPO): An option contained in the lease agreement allowing the lessee to purchase the equipment at a predetermined price at lease term.

Fixture: Equipment in the nature of personal property that has been so annexed to real property that it is regarded as part of the real property. Some examples of a fixture are a furnace in a house, a counter affixed to the floor in a retail space and a sprinkler system in a building. When a fixture is financed, a fixture filing is filed in the real estate records to provide notice of the lessor's interest in the fixture. Also, a landlord and mortgagee waiver is generally obtained.

Full-service Lease: A lease that includes 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.

Funding: The process of paying the manufacturer of the equipment for the equipment being placed on lease.

Funding Source: 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 a debt-funding source, such as a bank or other lending institution.

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Generally Accepted Accounting Principals (GAAP): Accounting standards established by the Financial Accounting Standards Board to assure that external financing statements are fair representations of the economic circumstances of the company. FASB 13, "Accounting for Leases," details the practices for accounting for leases by both lessors and lessees.

Gross Pretax Yield: The yield calculated in a lease before considering tax benefits and costs of doing business, such as bad debt and general and administrative expenses.

Gross Receivables: Accounting term representing the total payments remaining to be collected on the lease contract.

Guaranteed Residual Value: A situation in which the lessee or an unrelated third party (e.g., 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 salvaged subsequently at an amount below the guaranteed residual value.

Guarantor: The party that promises to pay the lease payments to the lessor in the event the lessor defaults.

Guaranty: A contract pursuant to which a person promises to pay or perform obligations that another person is supposed to pay or perform. In a Limited guaranty, the Guarantor will guarantee all or part of certain identified obligations of a debtor or will guarantee all obligations up to a certain dollar amount. Often, a guaranty is not limited to set obligations, but also includes all future obligations that the debtor may subsequently owe to the lender. Such continuing guaranties may be revoked by the guarantor at any time, but such revocation is only effective with respect to obligations of the debtor that arise subsequent to revocation.

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Implicit Rate: The discount rate that, when applied to the minimum lease payments (excluding executory costs) together with any un-guaranteed residual, causes the aggregate present value at the inception of the lease to be equal to the fair market value (reduced by any lessor retained investment tax credits) of the leased property.

In Service Date: The date on which tax depreciation computations begin. The in service date is typically the date the asset is accepted and placed into business use.

Inception of a Lease: The date of the lease agreement or commitment if earlier.

Incumbency Certificate: Form of Secretary's Certificate that certifies that officers specified in the certificate are incumbents.

Indemnification: A clause in a master lease agreement that requires lessees to indemnify lessors against any and all claims, suits, actions, damages, liabilities, expenses, cost, including attorney fees, whether or not a suit is instituted, arising out of or incurred in connection with the equipment.

Indemnity Clauses: The indemnify provisions in a lease: general indemnity, general tax indemnity and special tax indemnity.

Independent Lessor: A type of leasing company that is independent of any one manufacturer, and, as such, purchases equipment from various unrelated manufacturers. The equipment then is leased to the end-user or lessee. This type of lessor also is referred to as a third-party lessor.

Initial Direct Costs: Costs incurred by the lessor that are directly associated with negotiating and consummating a lease. These costs include, but are not necessarily limited to, commissions, legal fees, costs of credit investigations, the cost of preparing and processing documents for new leases acquired and so forth.

Inspection: The act whereby the lessor goes to the lessee site to see if the leased equipment is in good working order.

Installment Sale: A sale in which the lessee pays the lessor several payments over a period of time. Sometimes used to finance the sale of a residual.

Insured Value: An agreed-upon value that the insurance company will pay the beneficiary if the equipment is destroyed while on lease.

Interim Rent: A charge for the use of a piece of equipment from its in-service date, or delivery date, until the date on which the base term of the lease commences. The daily interim rent charge typically is equal to the daily equivalent of the base rental payment. The use of interim rent allows the lessor to have one common base term commencement date for a lease agreement having multiple deliveries of equipment.

Internal Rate of Return (IRR): The unique discount rate that equates the present value of a series of cash inflows (i.e., lease payments, purchase option) to the present value of the cash outflows (equipment or investment cost). IRR is the most common method used to compute yields.

Investment Tax Credit (ITC): A credit that a taxpayer is permitted to claim on the federal tax return (a direct offset to tax liability) as a result of ownership of qualified equipment. ITC was repealed by the Tax Reform Act of 1986, for all equipment placed in service after 1985.

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Landlord Waiver and Consent: A document required by a lessor when a lessee is placing the leased equipment on a property leased from another party, to secure lessor's rights.

Lease: A contract through which an owner of equipment conveys the right to use the equipment to another party.

Lease Acquisition: The process whereby a leasing company purchases or acquires a lease from a lease originator, such as a lease broker or leasing company.

Lease Agreement: The contractual agreement between the lessor and the lessee that sets forth all the terms and conditions of the lease.

Lease Expiration: The time at which the original term of the lease contract has ended.

Lease Payments: Also called rentals. The amount the lessee pays the lessor in return for using the leased equipment.

Lease Rate: A rate widely used in the leasing industry. Computed by dividing the monthly payment by the cost basis of the lease. Also called the lease rate factor.

Lease Schedule: An addendum to a master lease, stating specific equipment and lease terms.

Lease Term: The fixed, non-cancelable term of the lease. Includes, for accounting purposes, all periods covered by fixed-rate renewal options, which for economic reasons appear likely to be exercised at the inception of the lease. Includes, for tax purposes, all periods covered by fixed-rate renewal options.

Lessee: The user of the equipment being leased.

Lessor: The owner of equipment leased to a lessee or user. (Legal title under the Uniform Commercial Code may be with the lessee in finance leases and non-tax leases).

Lien: A security interest on property to protect the lender in the event of lessee default.

Limited Partnership: Tax entity formed by individual investors to shelter personal income. Often used to finance leasing operations. One existing under statute which has general and limited partners. The general partners actually conduct the business and have the full liability of partners. The limited partners take no part in the business but merely invest capital, and their liability is limited to the amount they invested. Business names identify themselves as being limited by either the LTD. or Limited written after the name.

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MACRS (Modified Accelerated Cost Recovery System: The tax depreciation method applicable to tangible depreciable property generally placed in service after 1986. MACRS uses the 200% declining balance method of depreciation and is, therefore, a more accelerated method of depreciation than ACRS, which is based on the 150% declining balance method.

Master Lease: A lease agreement containing boiler plate provisions 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 and execute a new lease contract with the lessor. The actual lease rate for a specific piece of equipment generally will be set upon equipment delivery to the lessee.

Merger: An amalgamation of two corporations in which one of the corporations survives and the other disappears. The surviving corporation acquires the assets, liabilities, franchises and powers of the absorbed corporation. The absorbed corporation ceases to exist as a legal entity. Credit must approve any merger effecting an existing credit.

Mid-quarter Convention: A depreciation convention (replacing half-year convention for certain taxpayers in certain years) that assumes all equipment is placed in service halfway through the quarter in which it was actually placed in service. Allowable acquisition and disposition year depreciation deductions are pro-rated based upon the mid-quarter date of the quarter in which the asset was placed in service.

Minimum Lease Payments: From the lessee perspective, all payments that are required to be made, may be required to be made or, in all probability, will be made to the lessor per the lease agreement. Minimum lease payments for the lessee include, but are not limited to, the lease payments (excluding executory costs) during the non-cancelable lease term, bargain purchase options and put purchase options, the amount of any lessee residual guarantees and non-renewal penalties that are insufficiently severe to cause renewal. Minimum lease payments for the lessor include all payments to be received from the lease as described above, as well as the amount of any residual guarantees by unrelated third-party guarantors.

Modified Accelerated Cost Recovery System (MACRS): The current tax depreciation system as introduced by the Tax Reform Act of 1986, effective for equipment placed in service after December 31, 1986.

Mortgagee Waiver and Consent: Written acknowledgement of the lessor's ownership interest in certain equipment. Required on transactions for fixture equipment. Mortgagee Waiver is recorded in the real estate records where the mortgage records for the property are indexed.

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Net Lease: A lease in which all costs in connection with the use of the 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.

Non-tax Lease: 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.

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Off Balance Sheet Financing: Any form of financing, such as an operating lease that, for financial reporting reasons, is not required to be reported on a firm's balance sheet.

Operating Lease: 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 also is used to refer to leases in which the lessor has taken a significant residual position in the lease pricing and, therefore, must salvage the equipment for a certain value at the end of the lease term in order to earn its rate of return.

Original Equipment Cost (OEC): The amount the lessor pays the vendor for the equipment at the beginning of the lease. May include upfront sales tax.

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Partnership: A form of a business organization under which two or more persons associate as principals and contribute their property, skill and labor to carry forward some trade or business and to share in the profits, controls and risks. The acts of the partners fully bind the firm. Each general partner is liable for the debts of the partnership and his personal assets may be used to satisfy the debt.

Partnership Agreement: The agreement setting forth the conditions and terms under which a partnership is formed. Usually in the form of written Articles of Partnership (not required).

Payment Stream: The rentals due in a lease.

Payments in Advance: A payment stream in which each lease payment is due at the beginning of each period during the lease.

PMSI (Purchase Money Security Interest): A security interest is a PMSI to the extent that it is taken or retained by the seller of collateral to secure all or part of its price or taken by a person who by making advances or incurring an obligation gives value to enable the debtor to acquire rights in or the use of collateral if such value is in fact so used. To obtain super priority, the security interest must be perfected pursuant to ยง9-312(4).

Placed in Service: Delivered and available for use, although the equipment may still be subject to final installation and/or assembly.

Point: One percent, or one percentage point (1.00%). A point also represents 100 basis points.

Present Value: 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.

Pricing: Arriving at the periodic rental amount to charge a lessee. A lessor must factor many variables into its pricing, which may include lease term, lessor targeted yield, security deposits, residual value and tax benefits.

Purchase Option: An option in the lease agreement that allows the lessee to purchase the leased equipment at the end of the lease term for either a fixed amount or at the future fair market value of the leased equipment.

Purchase Order: A written authorization signed by a designated representative of a business calling on a supplier or vendor to provide goods, services or equipment at specified prices, in specified amounts at a designated time and place. Legally, a purchase order is an offer to buy and a supplier/vendor accepts its terms and conditions by making delivery or by agreeing to make delivery of the goods.

Put Option: An option in a lease (e.g., for equipment purchase or lease renewal) in which the exercise of the option is at the lessor's, not the lessee's option.

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Quiet Enjoyment Clause: A contractual provision that permits the lessee to use the leased property free from unreasonable interference by the lessor.

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Rate Factor: A percentage amount that, when multiplied by the original equipment cost, produces the monthly rental.

Remarketing: The process of selling or leasing the leased equipment to another party upon termination of the original 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.

Renewal Option: An option in the lease agreement that allows the lessee to extend the lease term for an additional period beyond the expiration of the initial lease term, in exchange for lease renewal period.

Repossession: A situation in which a lessor reclaims and physically removes the leased equipment from the control of the lessee; usually caused by payment default.

Resale Certificate: Every sale is taxable in a taxable jurisdiction. A resale certificate is used when a company purchases equipment for a subsequent resale or lease, without intervening use by the purchaser. This is not taxable. When purchases are made for resale, a resale certificate should be issued to the vendor. For audit purposes a vendor must obtain a valid resale certificate when sales tax is not collected at the time of sale.

Residual Value: The value, either actual or expected, of leased equipment at the end or termination of the lease.

Rollover: Exchange in lease term and/or payment resulting from a change in equipment, such as in a takeout or upgrade. The rollover finances those costs associated with the change in equipment and may result in the lessor financing an amount greater than the equipment value.

Rule of 78: An accelerated method of allocating periodic earnings in a lease (or a loan) based upon the sum-of-the-years method. The method recognizes principal reductions at a slower rate than the simple interest method.

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Sale-leaseback: A transaction that involves the sale of equipment to a leasing company and a subsequent lease of the same equipment back to the original owner, who continues to use the equipment.

Salvage Value: The expected or realized value from selling a piece of equipment.

Schedule: Listing of equipment to become subject to a lease that describes the equipment in detail. The schedule may reflect the lease term, the commencement date and the location of the equipment and may be incorporated into the basic lease agreement by reference.

Secretary's Certificate: A document signed by the secretary of a corporation that certifies that an action is authorized or a signature is valid. Typically, we require a Secretary's Certificate certifying that the company is authorized to enter into the specific transaction and certifying that certain persons are authorized to sign documents on behalf of the corporation.

Severability: A provision in a lease agreement that states that if any part of provision of a lease shall be found unenforceable, it alone shall be discarded and the remaining provisions shall be given their full force and effect.

Signing Authority: Original or certified copy of corporate resolution of the Board of Directors, Certificate of Secretary or Incumbency Certificate. This authority must show signer's name, title, specimen signature and certification by an officer other than the signer of lease documents.

Skipped-payment Lease: A lease that contains a payment stream requiring the lessee to make payments only during certain periods of the year.

Spread: The difference between two values. In lease transactions, the term generally is used to describe the difference between the interest rate of the lease and the interest on the debt used to fund the lease.

Step-payment Lease: A lease that contains a payment stream requiring the lessee to make payments that either increase (step-up) or decrease (step-down) in amount over the term of the lease.

Straight-line Depreciation: A method of depreciation (for financial reporting and tax purposes) in which the owner of the equipment claims an equal amount of depreciation in each year of the equipment's recovery period.

Structuring: Pulling together the many components of a lease to arrive at a single lease transaction. Structuring includes, but is not limited to, lease pricing, end-of-term options, documentation issues, indemnification clauses, funding and residual valuations.

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Tax-exempt Organization: An organization that may issue or incur tax-exempt obligations. State and local governments are tax-exempt organizations.

Tax Lease: A generic term for a lease in which the lessor takes on the risks of ownership (as determined by various IRS pronouncements) and, as the owner, is entitled to the benefits of ownership, including tax benefits.

Termination Value: The liability of the lessee in the event of termination is set forth in a termination schedule that values the equipment at various times during the lease term. This value is designed to protect the lessor from loss of investment. If the equipment is sold at a price lower than the amount set forth in the schedule, the lessee pays the difference. In the event the resale is at a price higher than in the termination schedule, such excess amounts belong to the lessor. The termination schedule is not the same as the casualty value schedule, insured value schedule or stipulated loss value schedule.

Ticket Size: Refers to the cost of equipment being leased. The leasing marketplace is roughly segmented into the small, middle and large ticket markets.

True Lease: Another term for a tax lease in which, 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.

Turnaround Time: The time it takes to make a credit decision and inform the lessee after receiving the lease application.

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Uniform Commercial Code (UCC): A set of standard rules, adopted by 49 states (all except Louisiana), that governs commercial transactions.

UCC-1: A UCC document filed by a lessor informing the public that the filing party legally owns the equipment on lease.

UCC Financing Statement: A document, under the UCC, filed with the state and/or county to provide public notice of a security interest in personal property.

Unearned Income: The portion of income from a lease that must be earned over the life of the lease in accordance with GAAP.

Upgrade: 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.

Use Tax: A state or local tax for using equipment on lease. The tax usually is billed each month, collected and remitted to the taxing authority.

Useful Life: A period of time during which an asset has economic value and is usable. The useful life of an asset sometimes is called the economic life of the asset.

Usury Laws: Laws regulating the charging of interest rates. Most usury laws protect consumers from unauthorized interest rates.

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Waiver: An intentional or voluntary relinquishment of a known right. In our contracts, there is often a waiver of claims and defenses in which the obligor explicitly agrees not to assert against an assignee of the contract any claims or defenses the obligor might have against the assignor.

Warehousing: The short-term funding of leases before permanent funding is finalized.

Wintergreen Lease: A lease that requires the lessee to give notice to the lessor in order to renew for another term. Otherwise, the lease terminates on the already established termination date.

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Yield: The rate of return to the lessor in a lease investment.

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