Leasing
Glossary of Terms
LESSOR:
The funding source is usually considered the Lessor.
LESSEE: The business and/or principals signing the lease are considered
the lessee's.
FUNDING
SOURCE: The company, or bank, that will be paying the vendor.
DOCUMENTS
THE DEAL: This step occurs after approval of credit. Here, the
required leasing documents are prepared for the Lessee to sign.
DEFERRED PROGRAMS: For strong lessee's who would like to like to begin their
payments after the equipment begins to generate income we can
offer deferred payments. These must be approved in advance
by the funding source.
UCC-1
FILING: This is a filing with the state that perfects the security
interest of the funder. Most funding sources will want UCC-1
filings to be recorded.
CAPITAL
LEASE: Typically, $1.00 buyout leases are considered capital leases. This
type of lease is similar to a financing agreement, meaning
that payments are similar to a bank loan. Usually, capital leases
are not 100% tax deductible. The equipment is put on a
depreciation schedule and written off over a period of years.
OPERATING
LEASE: These leases have a buyout clause at the end of the term. True
operating leases can be 100% tax deductible. This means that all
monthly payments can be written off as an expense and the
equipment does not need to be depreciated over a term of years.
FINANCE
AGREEMENT: Banks typically provide finance agreements. With a finance
agreement, there may be a down payment required up front, and the
loan is amortized for a period of years. When the last payment is
made the agreement is fully satisfied. There is only a nominal
buyout with these types of agreements. A lease can be considered a
type of finance agreement if it has a $1.00 buyout at the end.
LEASE: Leases are a simple way of obtaining money. Leases, in most
cases, will have payments or security deposits due up front, and a
buyout at the end of the term. Leases are very simple to set up
and have many tax benefits. Leases also require very little money
up front and may not require financial statements or tax returns.
HARD
COSTS: Equipment and it's tangible peripherals are considered hard
cost. Most other expenses are soft costs.
SOFT
COSTS: Freight, labor, software, and other intangible items are
considered soft costs. Most funding sources will only allow a
certain percentage of the total transaction to be soft costs.
These costs usually cannot be recovered in case of default and
therefore increase the riskiness of the deal.
