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Full-Service Lease

(See Bundled Lease)

Commercial Lease

(See Business Lease)

Full Payment Lease

(See Full Payout Lease)

Manufacturer Certificate of Origin (MCO)

(See Manufacturer Statement of Origin (MSO))

Half Open-End Lease

(See Partial Open-End Lease)

Severance Agreement

(See Real Estate Waiver.) In agricultural leasing, this document is the acknowledgment by an owner (landlord) or mortgagee of real property that the leased equipment belongs to the lessor, and they can remove it (may also be called Easement).

Gross Lease

(See Service Lease)

Maintenance Lease

(See Service Lease)

Tax Lease

(See True Lease.)

Stream Rate

(See running rate.)

Lease Agreement

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

Dividend

1) The profits of a corporation as distributed to a shareholder. 2) A share of a fund.

Open-End Lease

A Lease in which the lessee guarantees the future residual value of the property to be realized by the lessor at the end of the lease.

Balance Sheet

A List of one's assets and liabilities and their difference (net worth) on a precise date.

PUT Agreement

A Purchase Upon Termination agreement is between the lessor and lessee wherein the lessee agrees to buy, and the lessor agrees to sell, the leased equipment for a predetermined amount.

Split TRAC

A Split TRAC transaction meets the requirements for true lease treatment for tax purposes but may also be classified as an operating lease for GAAP. The Split TRAC provision is structured so that the lessor assumes some of the estimated residual value risk. This may be achieved by the lessor and the lessee taking pro rata portion of the risk or by limiting the risk to the lessee.

Personal Property Tax

A Tax on the ownership of personal property; a type of ad valorem tax imposed by certain states and their political subdivisions.

Pledge

A bailment of property to a creditor to secure payment of debt or performance of some obligation.

Machine Learning

A branch of artificial intelligence, machine learning is a data analysis method that automates analytical model building based on the idea that systems can identify patterns, learn from data, and make decisions with minimal human intervention.

Artificial Intelligence (AI)

A branch of computer science dealing with the ability Ora machine to perform cognitive functions associated with human minds. Examples OrAl technologies include robotics, autonomous vehicles, machine vision, language processing, virtual agents, machine learning, and deep learning.

Proprietorship

A business enterprise owned by one person who is directly liable for all business liabilities.

Partnership

A business enterprise owned by two or more parties who are jointly and severally liable for all business liabilities and who share management authority.

Discount Rate

A certain interest rate that is used to bring a series of future cash flows to their present value to state them in current, or today's dollars.

Interim Rent

A charge for the use of equipment from delivery date until the base term of the lease commences. The use of interim rent allows the lessor to have a common commencement date for its leases.

Interest

A charge for the use of money.

Uniform Commercial Code (UCC

A code of commercial law enacted by individual states. Certain sections of the UCC govern lien perfection, the effect of perfection or non-perfection, and the priority of security interests and agricultural liens

Lease Line

A committed amount by a funding source, which is used by a lessor to acquire equipment for lease to a lessee.

Return on Assets (ROA

A common measure of profitability based upon the amount of assets invested; ROA is equal to the ratio of net income to total assets.

Corporation

A company or group of people authorized to act as a single entity and recognized legally as a person. It has a continuity of existence without regard to transfers of interest in it.

Farm Credit System

A cooperative network of agricultural borrowers that are governed by stockholders and directors. It was established by Congress in 1916 to provide a reliable source of credit for the nation's farmers and ranchers.

System of Record

A core system of record serves as the "Source of Truth" for a particular set of information.

Investment Tax Credit (ITC)

A credit against taxes otherwise due from a taxpayer under the Internal Revenue Code. The credit is generally computed as a percentage of the costs of certain types of assets. (See IRC Sections 38 and 46-50). The Tax Reform Act of 1986 effectively repealed the ITC for newly acquired property.

Funding Audit

A critical step in the final examination of the executed contract document package before funding an equipment lease or equipment finance transaction.

Defeased

A debt is considered defeased when a borrower deposits enough cash into a pledged or restricted account to service the borrower's debt.

Write-Down

A deliberate reduction in the book value of an asset (as to reflect the effect of obsolescence).

Accelerated Depreciation

A depreciation method, usually for tax purposes, in which an asset's cost can be deducted in a faster manner than straight-line depreciation, allowing the owner of the asset to take more depreciation in the earlier years of an asset's life and less depreciation in the later years.

Securitization

A device of structured financing where an entity seeks to pool together its interest in identifiable cash flows over time, transfer the same to investors either with or without the support of further collaterals, and thereby achieve the purpose of financing. Though the end-result of securitization is financing, it is not "financing" as such, since the entity securitizing its assets is not borrowing money but selling a stream of cash flows that was otherwise to accrue to it.

Landlord Waiver

A document in which a landlord acknowledges that certain property on its tenant's premises is owned by a third-party (the lessor) and is leased to the tenant and in which a landlord agrees to recognize and not interfere with the lessor's rights respecting the lessor's property.

Mortgagee Waiver

A document in which a mortgagee acknowledges that certain property on its mortgagor's premises is owned by a third party (the lessor), and is leased to the mortgagor, and in which the mortgagee agrees to recognize and nor interfere with the lessor's rights respecting its property.

Chattel Paper

A document that is a promise to pay and is either secured by personal property (such as equipment) or gives the person obligated to make payments the right to possess and use personal property.

Delivery and Acceptance Certificate (D&A)

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 the D&A is signed. (Also referred to as Certificate of Delivery and Acceptance).

Commitment Fee

A fee required by the lessor, at the time a proposal or commitment is accepted by the lessee, to lock in a specific lease rate and/or other lease term. A commitment letter is a document prepared by the lessor that details its commitment, including rate and term, to provide lease financing to the lessee. This document precedes final documentation and may or may not be subject to other conditions, such as lessor credit approval, guarantors, collateral, etc.

Synthetic Lease

A financing agreement designed to be treated as a loan for tax purposes and a lease for accounting purposes.

Acknowledgement

A formal statement by a party before a notary public to the effect that they have executed a specific instrument or document.

Wet Lease

A gross lease, traditionally for aircraft or marine vessels, in which the lessor provides bundled services such as the payment of property taxes, insurance, maintenance costs, as well as all personnel, fuel, and provisions to operate the craft.

Equal Credit Opportunity Act (ECOA)

A law that applies to any person who, in the course of business regularly participates in credit decisions and includes banks, finance companies, and credit unions.

Replevin Action

A lawsuit seeking an order from a judge requiring the lessee to Repender the equipment at a certain date, time, and place, or face additional legal action.

Direct Financing Lease

A lease classification per ASC 842 for a lessor. If a transaction meets the classification criteria for a sales-type lease and the 90% test is passed because there is a residual guarantee from an unrelated third- party, it is classified as a direct financing lease.

Early buyout option (EBO)

A lease containing an option for the lessee to pay off the lease and buy the equipment for a premium at a specified point during the contract term; sometimes called Early Payoff Option (EPO)

Fair Market Value Lease (FMV)

A lease containing an option for the lessee to purchase leased property at the end of the lease term at its then fair market value.

Safe-Harbor Lease

A lease created under the Economic Recovery Tax Act of 1981 (ERTA) to transfer federal tax benefits from a party who could not use them to a party who could. A Safe-Harbor Lease was a lease only for federal income tax purposes and not for commercial law purposes. Safe-Harbor Leasing was repealed by The Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA).

Master Lease

A lease document, not a lease classification, that allows a lessee to obtain additional leased equipment under the same basic lease terms and conditions originally agreed to, without having to renegotiate and execute a new lease contract with the lessor.

Net Lease

A lease in which all costs in connection with the use of property, such as maintenance, insurance, and property taxes, are paid for separately by the lessee and are not included in the rental payment to the lessor.

Partial Open-End Lease

A lease in which the lessee guarantees the residual value of the property, but (as opposed to an open-end lease) does not share in any appreciation of the property.

Discounted Lease

A lease in which the lessor assigns the payment stream to a funding source in return for the immediate payment of the present value of the stream of payments assigned.

Service Lease

A lease in which the lessor provides service(s) such as maintenance and care of the leased property. The cost of such service(s) may be built into the lease, or it may be paid under a separate maintenance agreement that the lessee was required to purchase. Also, a form of Operating Lease. Other names for this type of lease include Gross Lease, Maintenance Lease, Bundled Lease, and Full-Service Lease.

Full Payout Lease

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 the leased property's future residual value.

TRAC Lease (TRAC)

A lease on a qualified automobile, truck, or trailer, which may be considered a true lease for federal income tax purposes even though it contains a Terminal Rental Adjustment Clause (TRAC), which effectively contains the lessor the residual value. Note: the mere existence of a TRAC does not, in and of itself, ensure true lease status. To quality as a true lease for federal income tax purposes, the lessor must also: maintain a minimum at-risk position equal to borrowings used to fund the vehicle with recourse to meet the requirements of IRC 7701(h) and obtain a lessee certification that the lessee will use the vehicle more than 50 percent for business.

Bundled Lease

A lease that includes many additional services such as maintenance, insurance, and property taxes that are paid for or performed by the lessor; the costs are included in the lease payments. Also referred to as a "full service lease"

Municipal Lease

A lease to a municipality or other state or local government or the interest earnings to the lessor are tax-exempt.

True Lease

A lease, which for tax purposes, fails to meet all tests for a conditional sales contract under IRS Revenue Ruling 55-540 and therefore entitles the lessor to qualify for the tax benefits of ownership and the lessee to claim the entire amount of the lease rental as a tax deduction.

Captive Lessor

A leasing company that has been set up by a manufacturer or dealer of equipment to finance the sale or lease of its own products to end-users or lessees.

Terminal Rental Adjustment Clause (TRAC)

A lessee guaranteed residual value for vehicle leases (automobiles, trucks, or trailers), the inclusion of which will not, in and of itself, disqualify the tax lease status of a tax-oriented vehicle lease.

Limited Liability Partnership (LLP)

A limited liability partnership (LLP) is a partnership in which some or all partners (varies by jurisdiction) have limited liabilities. Therefore, it exhibits elements of partnerships and corporations. In an LLP, each partner is not held responsible or liable for another partner's negligence or misconduct.

Commercial Term Loan

A loan agreement between a business and financial Institution with a fixed maturity date and stipulated periodic payments.

Term Loan

A loan with a fixed maturity date and stipulated periodic payments.

Depreciation

A means for a firm to recover the cost of a purchased asset, over time, through periodic deductions or offsets in 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.

Return On Equity (ROE)

A measure of profitability related to the amount of invested equity; RoE is equal to the ratio of net income available to common stockholders to common equity.

Cash Basis Accounting

A method of accounting that recognizes revenue and expenses only when the corresponding cash is received, or payments are made. Thus you record revenue only when a customer pays for a billed product or service, and you record an expense only when it is paid by the company.

Accrual Basis Accounting

A method of accounting that recognizes revenues and expenses when the transaction is incurred. Thus, income is recognized when earned (a good is delivered or a service provided) and expenses are recorded when incurred. Accrual basis accounting employs the matching principal, where revenue is recorded in the same period (matched) as its related expenses.

Cash Basis

A method of accounting that shows expenses and income only when paid or received.

Accrual Basis

A method of accounting that shows expenses as incurred and income as earned even though such expenses and income have yet to be actually paid or received.

Middle Market

A nebulous term that denotes the size of the transactions in which a market is generally involved. A common designation of the middle market is for transactions between $100,000 and $2 million

Money-Over-Money Transaction

A non-tax lease or conditional sales contract in the guise of a lease in which the title is intended to pass to the lessee at the end of the lease term.

Loss Payee

A party entitled to receive proceeds from an insurance settlement arising in connection with a covered casualty or loss.

Additional Insured

A party other than a party in whose name insurance is issued who is also protected against losses covered by such policy.

Plaintiff

A party who brings a lawsuit.

Defendant

A party who must defend a lawsuit.

Funding source

A party who provides financing for a lease transaction. Brokers frequently use the term in reference to lessors, but lessors can also use it in referring to those parties who provide lessors with the funds they use to purchase equipment

Balloon Payment

A payment on a loan that is unusually large in comparison to the other payments on the loan. A balloon payment is usually the final payment on a loan.

Payments in Arrears

A payment stream in which each lease payment is due at the end of each period during the lease.

Payments in Advance

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

Payoff

A payoff is an amount that will retire a debt or other obligation at any given point in time. The term has commonly been used in reference to both loans and non-cancelable leases.

Rental

A periodic lease payment, A lease whose non-cancelable term is less than.a year (by the hour, day, month.

Agent

A person who has the legal authority to act for and represent another party in dealing with third parties.

Trustee

A person, or entity that holds title to, or a security interest in, leased

Line of Credit

A pre-approved amount of borrowing allowed a debtor by a creditor.

Paper Out

A process used for electronic documents to convert the electronic document to a paper document for the purposes of transfer.

Covenant

A promise to do something or that certain facts are true.

Bargain Purchase Option

A provision allowing the lessee, at their option, to purchase the leased property for a price sufficiently lower than the expected lair Palue of the property at the date the option becomes exercisable, so that exercise of the option is reasonably assured at the inception of the lease.

Bargain Renewal Option

A provision allowing the lessee, at their option, to renew the lease for a rental sufficiently lower than the fair rental of the property at the date the option becomes exercisable, so that exercise of the option is reasonably assured at the inception of the lease.

Acceleration Clause

A provision in a financial instrument, which provides that the occurrence of a default by one party makes that party's outstanding balance to the other party immediately due and payable.

Non-Appropriation Clause

A provision in a municipal lease which addresses the contingency that the municipal lessee's governing body may not appropriate funds to pay lease payments in future fiscal years.

After-Acquired Property Clause

A provision in a security agreement that gives the creditor a security interest in the property of the debtor acquired after the date of the security agreement. Normally found in addition to blanket lien language in a security agreement.

Section 179

A provision of the Internal Revenue Code that allows the taxpayer to Section deduct certain types of property as a direct expense against income, rather than depreciating the asset over its tax life, as set forth by the IRS.

Revenue Ruling

A public administrative ruling by the IRS that applies the law to a particular factual situation, Such ruling can be relied upon as precedent by all taxpayers.

Nominal Option

A purchase option that allows the lessee to purchase the equipment at the end of the lease for $1, or some other minimal payment, such that they are extremely likely to exercise the option and the lessor is unlikely to have a "meaningful residual interest." The fact that the lessor has no residual interest in the asset at the end of the term is enough to "re-characterize" it as a secured sale or financing transaction rather than a true lease. (Other names sometimes used include Nominal Purchase Option, Bargain Purchase Option, $1 Purchase Option, S1 Out, Buck Out, $101 Purchase Option, and more).

Vendor

A purveyor of equipment from whom a lessor purchases equipment at the specific request of a lessee for a lease to that lessee; a supplier.

Advance Ruling

A request directed to the Internal Revenue Service, which seeks an advance ruling that a particular transaction will be recognized as a lease (or some other specific type of transaction). Such rulings have been requested in leveraged lease transactions.

Option to Purchase

A right to purchase a property at a future date; a call.

Purchase Money Security Interest (PMSI)

A security interest in a property to secure the payment of the purchase price of the property.

Managed Services (Contract Services)

A service level agreement (SLA) between a Managed Service Provider (MS) and its client that outlines both parties' responsibilities, including which services the MS will provide, minimum response time, and liability protection for the MSP. The contract also specifies the payment structure. Many MSPs, although not all, offer their services on a flat-fee basis, charging a flat-fee per month for each desktop or server, for example.

Rental Agreement

A short service lease, usually less than 12 months in duration.

Warehouse Line

A short-term revolving credit facility extended by a financial institution for the funding of leases before permanent funding is finalized. It allows the leasing company to age and amass its portfolio without compromising lending capacity.

Sinking Fund Rate

A sinking fund rate is the earnings rate applied to the balance of investment during sinking fund (or disinvestment) phases and is an essential element of yields based on after-tax cash flows (such as the Multiple Investment SInking Fund MISF)

Security Deposit

A specific amount paid at the inception of the lease by the lessee to ensure full compliance with the lease and to provide the lessor with some protection against defaults, delays, or other failures of performance by the lessee. Occasionally, advance periodic lease payments may serve the purpose of a security deposit, but more frequently, the security deposit is a separately identified obligation.

Certificate of Insurance

A statement from an insurance company or its agent that a certain policy has been written. The certificate usually summarizes the policy's coverage.

Asset Depreciation Range (ADR)

A system for the depreciation of the costs of most assets for purposes of federal income taxation. The ADR system was substantially replaced by the ACRS system according to the Economic Recovery Tax Act of 1981 and replaced itself by MACRS in the 1986 Tax Reform Act.

Portfolio Management System

A system of record for funded and booked leases and loans. It tracks the transaction, asset, and customer account data for the life of the transaction. This data serves as a key input for portfolio monitoring, billing. collecting, customer service, and asset and end of lease management. Many other terms may be used for this including Accounting and Servicing System, Lease Management System, Lease Accounting System, or Servicing Platform.

Origination System

A system of record for lease and loan origination data from quoting to a credit application, all the way through documentation and funding. This data enables lessors and lenders to track the progress of origination pipelines across all stages of the origination lifecycle.

Customer Relationship Management System (CRM)

A system of record for tracking interactions and activities with contacts, prospects, leads, and accounts. This data allows you to track your sales pipeline.

Alternative Minimum Tax (AMT)

A tax calculation which calls for the payment of the higher of the taxpayer's regular taxable income or an AMT liability, based on the taxpayer's preferences for the year. AMT is triggered by an event such as accelerated depreciation, thus preventing a taxpayer to excessively reduce its tax liability. Such a taxpayer is known as an "AMT Taxpayer."

Use Tax

A tax imposed on the use of tangible personal property within a taxing jurisdiction.

Credit

A tax incentive that allows taxpayers to subtract the amount of the credit they have accrued from the total tax they owe.

Half-Year Convention Taxpayer

A taxpayer who must use the half-year convention in computing its MACRS deductions because it does not place more than 40 percent of its property into service during the last quarter of its tax year.

Insurance Binder

A temporary document used as proof of insurance and confirmation that the customer has applied to purchase an insurance policy.

Lease Intended as Security

A transaction in which the form is a lease, but the substance is a conditional sales contract or a loan with a security agreement on the property. (Sometimes called Lease Intended for Security)

Lease (Tax Definition)

A transaction in which the lessor is the owner of the equipment and receives tax benefits of ownership, including depreciation and tax credits. The lessee may claim the lease payment as an operating expense deduction in exchange for its right to use the asset.

Sale-Leaseback

A transaction in which the original user sells an asset to a lessor and leases it back. The seller- lessee records either a current gain or loss, or a deferred gain from the sale, and classifies the leaseback in accordance with proper lease accounting.

Lease

A transaction in which use and possession of; but not title to, tangible personal property is transferred for consideration.

Equipment Trust

A trust established for the purpose of purchasing and/or owning equipment for lease. Such trusts are utilized in the leasing of major capital assets such as aircraft, ships, and railcars.

Recourse

A type of borrowing in which the borrower (a lessor funding a lease is fully at risk to the lender for repayment of the obligation. The recourse borrower (lessor) is required to make payments to the lender whether or not the lessee fulfills its obligations under the lease agreement. Recourse borrowing arrangements may, or may not, take the underlying lease payment stream into account. It is not unusual where repayment is based on equal principal plus interest.

Non-Recourse

A type of borrowing in which the borrower (a lessor in the process of funding a lease transaction) is not at-risk for the borrowed funds. The lender expects repayment from the lessee and/or the 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 value of the leased equipment. Lessors may be non-recourse from a credit review, but seldom does this relinquish documentation-oriented risks.

Limited Liability Company (LLC)

A type of business entity that came into existence during the 1990s, which consists of one or more members which may be individuals, partnerships, limited partnerships, trusts, estates, associations, corporations, other limited liability companies, or other business entities. The members of a limited liability company are afforded limited liability similar to shareholders of a corporation and have pass-through taxes comparable to a partnership.

Revolving Line of Credit

A type of credit that does not have a fixed number of payments. An example of consumer revolving credit would be credit cards. Corporate revolving credit facilities are typically used to provide liquidity for a company's day-to-day operations.

Installment Credit

A type of credit that has a fixed number of payments, in contrast to revolving credit.

Residual Value Insurance (RVI)

A type of insurance that helps companies manage asset value risk by guaranteeing an adequately maintained asset will have a specified residual value at a future date.

Independent Lessor

A type of leasing company that is independent of a vendor or manufacturers and as such, purchase equipment from various unrelated manufacturers or dealers. The equipment is then leased to the end -user or lessee. This type of lessor may also be called a third-party lessor.

Bill of Sale

A written document that evidences the transfer of ownership of property.

Accelerated Cost Recovery System (ACRS)

ACRS is a system of rapid depreciation of the costs of most assets for federal income taxation. The Economic Recovery Tax Act of 1981 created ACRS. ACRS was modified under the Tax Reform Act of 1986 establishing depreciation methods for each ACRS class, depending on the Asset Depreciation Range (ADR) class life.

Allowance for Loan and Lease Losses (ALLL)

ALLL is determined based on the incurred loss methodology and is an estimated loan and lease loss reserve for bad debt; it sets funds aside to cover future losses. It involves a degree of management judgment to estimate the uncollectible amounts used to reduce the book value of loans and leases to the amount that a bank expects to collect. ALLL is a credit loss reserve.

Minimum Lease Payments

All payments the lessee is obligated to make under the lease agreement, except any lessee guaranteed payments in support of lessor debt and executory costs (i.e., insurance, maintenance, and taxes). Amounts included would consist of. Minimum rentals over the lease term. • Lessee guarantee of the residual value. If the lessee agrees to make up any deficiency below a stated amount, the entire stated amount must be included. Penalties for failure to renew; however, if the related renewal period is included in the "lease term," the penalty amount is not included. • Calculations for the lessor would also include any guarantee of the residual value or rental payments beyond the lease term by a financially capable unrelated party.

Basis

Also referred to as "Tax Basis." The original cost of an asset plus other capitalized acquisition costs such as installation charges and sales tax. Basis reflects the amount upon which depreciation charges are computed.

Accounts Receivable

Amounts owed a business by its debtors. The term is usually used in reference to amounts owed by customers.

Accounts Payable

Amounts owed by a business to its creditors.

FMV Lease Option

An FMV option provides that at the end of the lease, a determination is made as to the then-value of the equipment, at which point the lessee is given an opportunity to purchase it for that amount. Normally, a pure FM is indicative of a true lease, but the presence of the option does not necessarily ensure a finding that it is a true lease.

Reserves

An account established to cover losses on uncollected receivables.

Co-Lessee

An additional lessee to a lease. The lease will usually provide that the co-lessee is jointly and severally liable on the lease with the lessee.

Merchant Cash Advance (MCA)

An advance on future credit card receivables with payments calculated based on the total amount to repay. It is generally a percentage based on the borrower's or merchant's credit card volume. Once a merchant takes the advance, their total credit card receivables now cease to go to the merchant and are signed over to the advance company through a process called lockbox. The MCA company takes its predetermined amount and forwards the remainder to the merchant's bank account.

Purchase Upon Termination (PUT)

An agreement between the lessor and lessee wherein the lessee agrees to buy, and the lessor agrees to sell, the leased equipment for a predetermined amount upon termination of the lease.

Residual Guarantee

An agreement that the vendor guaranties all or a portion of the residual position priced into the lease structure.

Guaranty

An agreement to answer for the debt or obligation of another if that other party fails to pay or perform.

Indemnity

An agreement to reimburse another for a loss.

Repurchase Agreements

An agreement where the vendor agrees to purchase contracts under specific circumstances.

Ultimate Net Loss (UNL) Agreement

An agreement where the vendor guaranties a portion of the potential loss, generally in a pooled structure for all contracts in that pool.

Equipment Finance Agreement (ERA)

An agreement, which resembles the structure of a finance lease, but provides for the lender/secured party to lend the obligor/borrower an amount for the purchase of specified equipment. Usually, the lender pays the obligor's vendor invoice for the equipment and establishes its security interest by filing a lien against the collateral.

Conditional Sales Contract

An arrangement in which a buyer takes possession of an item, but its title and right of repossession remains with the seller until the buyer pays the full purchase price (usually in installments). Sometimes called Conditional Sales Contract or CSC.

Lien

An encumbrance upon property.

Lease Broker

An entity that provides one or more services in the lease transaction but does not retain the lease transaction for its own portfolio. Such services include finding the lessee, working with the equipment manufacturer or dealer, securing debt financing for the lessor to use in purchasing the equipment, and locating the ultimate lessor or equity participant in the lease transaction. The lease broker may also be referred to as a packager or syndicator.

Appraisal

An evaluation of the value of a specific item of property, usually as conducted by a person with expertise concerning such property.

Deduction

An expense applied against income, primarily to arrive at taxable income. deductions are generally limited to items that are ordinary and necessary to operating a business.

Asset

An item of value

Liability

An obligation that one is legally bound to satisfy.

Purchase Order

An offer for the purchase of an item of property. The purchase order will normally specify the terms and conditions under which the buyer is willing to make the purchase; when accepted by the seller it becomes the purchase contract.

Revenue Procedure

An official statment published by the IRS that either affects the rights or duties of taxpayers of other members of the public under the Internal Revenue Code and related statutes, treaties, and regulations.

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 payments.

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.

Equity (Investor)

An ownership interest in a business or property.

Non-Tax Lease

Any lease in which the lessee is, or will automatically become, the owner during or at the end of the lease term of the property and, therefore, is entitled to all the tax benefits of ownership. Any lease, which in substance, is, in fact, a conditional sales contract, money-over-security. money transaction, purchase money security agreement, or other lease intended as

Installment Loan

Any loan, the terms of which call for regular or irregular periodic payments, the sum of which will repay the debt and interest.

Leveraged Lease

Any of several specific types of leases involving, at a minimum, blessee, a lessor, and a funding source from whom the lessor borrows a significant portion of the cost of the equipment and takes an equity position in the remainder.

Internal Revenue Service (IRS)

Applicable rulings to the leasing industry worth noting are IRS Revenue Ruling (RR) 55-540 (1955) and Revenue Procedure (RP) 75-21. Both relate to how the IRS treats a lease for tax purposes, that is, whether it is a lease summarized by the conditions described as necessary for a lease. RP 75-21 addresses the same issue, but from the lessor's viewpoint. This procedure, which came twenty years after RR 55-540, defines in detail the requirements which must be met with for a transaction to be construed a true tax lease. They are:• The lessor must have 20 percent minimum at-risk investment in the property at the inception, during and at the end of the lease term. The exercise price of any lessee purchase option must not be less than the fair market value.• The lessee may not make an investment in the lease, nor can it lend to the lessor any purchase money or guarantee any lessor loans. The value of the property's original cost and the useful life of the property at the end of the lease term must be equal to the greater of (a) one year or (b) 20 percent of the originally estimated useful life. • The lessor must have positive cash flow and a profit from the transaction independent of tax benefits

Current Assets

Assets, which are readily converted into cash.

Estimated Economic Life of Leased Property

At the inception of the lease, the estimated remaining period during which the property is expected to be economically usable for its intended purpose by one or more users. The economic life is affected by such factors as technological changes, normal deterioration, and physical usage. Judgments regarding these matters are influenced by knowledge gained from previous experience. The estimated period is not limited by the lease term.

Amortization

Concerning a loan, the process of reducing a debt obligation through periodic payments. The payments usually include both an interest and principal component. In accounting terms, the spreading of the cost of an asset over its useful life for financial statements and or tax purposes.

Robotic Process Automation (RPA)

Configured software that mimics the actions of humans to carry out repetitive tasks automatically; may, but doesn't always include, cognitive functions of AI.

Cost of Funds (COF)

Cost of funds is the interest rate paid by a financial institution for the funds deployed in theri business (the cost of borrowing).

Know your Customer (KYC)

Customer due diligence process which may include checks and verification to comply with applicable regulations and internal company policies. Also referred to as Know Your Clientor Customer Information Program (CIP).

Customer Information Program (CIP)

Customer due diligence process which may include various background checks and verification to comply with applicable regulations and internal company policies. Also referred to as Know Your Customer (KYC) or Know your Client.

EL

Expected Loss

Accrued Expenses

Expenses incurred but not yet paid.

Exposure at Default (EAD)

Exposure at Default is part of the calculation to Determine Expected Loss for large-ticket transactions. (Basel Il requirement for bank lessors).

Finance Lease

Finance lease is a term used in many forms. As most frequently used, a net lease, which has as its purpose in the financing of the use of the property for a major portion of the property's useful life. The term is typically used in reference to leases written by third-party lessors. The term is often confusingly used to refer to a conditional sale in the form of a lease transaction. Finally, the term is a specified lease classification type under ASC 842.

Forced Liquidation Value (FLV)

Forced Liquidation Value (FLV) is the amount of money that a company would receive if it sold its assets in an auction immediately. The idea behind this forced liquidation value is to get an estimate of the financial position of the company in the worst possible situation and circumstance. The basis for FLV is the assumption that the business will sell its assets in the quickest time possible, which will usually lead to a low price.

ASC 840 842 (Accounting Standards Codification)

Formerly FASB 13 (See FASB 13)

Capital Lease

From a financial reporting perspective, a lease that has the characteristics of a purchase agreement and also meets certain criteria established by the Accounting Standards Codification (ASC 840) Such a lease is required to be shown as an asset and a related obligation on the balance sheet. Under ASC 842, it is referred to as finance lease.

Operating Lease

From an accounting perspective, any lease that has the characteristics of a usage agreement, and also fails to meet any of the criteria set forth under ASC 842 for a finance lease.

Sales-Type Lease

From the lessor's perspective, a lease that meets any of the five criteria presented in ASC 842 is a sales-type lease.

Funds Transfer Pricing (FTP)

Funds transfer pricing is a method used to individually measure how much each source of funding is contributing to overall profitability. THe FTP process is most often used in the banking industry as a means of outlining the areas of strength and weakness with the funding of the institution.

GAAP

Generally Accepted Accounting Principles: the accounting principles used in the preparation of financial statements as outlined in FASB

Half-Year Convention

Half-year convention is a depreciation method that treats all property acquired during the year as being acquired exactly in the middle of the year meaning that only half of the full year of depreciation is allowed in the first year, with the remaining balance deducted in the final year of the schedule.

Good Faith

Honest intention and action

Place in Service

IN leasing, for income tax purposes, "place din service" means in use for its intended purpose.

Harvest Plan

In agricultural lending, this refers to a structure where an entity borrows money early in the year and skips several months before making an annual payment.

Absolute Value

In contrast to Relative Value, Absolute Value looks only at the asset's intrinsic value and does not compare to other assets.

Vehicle Title

In the US the certificate of title for a vehicle is a legal document, which establishes an individual or business as the legal owner of the vehicle

Cramdown

In the case of bankruptcy, the judge can often force the creditors to accept a reorganization plan in which the lender's recovery will be limited to the fair market value of the collateral - not the agreed loan repayment. This is only true for loans and leases intended as security, not true leases.

Charge-Off

In the case of severe delinquency, a declaration by a creditor that an amount of debt is not likely to be collected.

Drop to Paper

In the context of e-titles, this is a process that converts the electronic document to a paper document for purposes of transfer.

Cash Flow

Income inflows and expense outflows over a specified period.

Compound Interest

Interest computed on the sum of principal and accrued interest as of the date of computation.

Joint and Several

Joint and several liable via defined "A liability involving two or more parties in which each party is liable individually and independently as well as together.

LILO

LILO stands for Lease in Lease Out which was a specific type of leveraged lease transaction where defeasance was a distinguishing feature of the lease. (See

At-Risk Rules

Laws limiting the amount of losses a passive investor (usual y a limited partner) can claim. Only the amount actually at risk can be deducted currently.

Vendor Leasing

Lease financing offered to an equipment end-user in conjunction with the sale of equipment. Vendor leases can be provided by the equipment vendor two-party lease) or a third-party leasing company with a close working relationship with the equipment vendor.

Hell-Or-High-Water Clause

Lessee must make rental payments for the equipment irrespective of any claim it may have against the lessor and without setoff.

Current Liabilities

Liabilities, which must be satisfied within one year.

Vicarious Liability

Liability imposed upon a person even though they are not a party to the particular occurrence (e.g., the owner of a motor vehicle is vicariously responsible for injuries even though they are not driving the car at the time of the occurrence). In the case of a lease, the lessor is considered the owner of the vehicle.

Loss Given Default (AGD)

Loss given default refers to the amount of money a bank or other financial institution would lose should a borrower default on loan.

Manufacturer Statement of Origin (MSO)

Manufacturer's Certificate of Origin

Syndication

Method of selling property whereby the promoter (the syndicator) sells interests or shares in the property to investors in the form of a partnership, limited partnership, or tenancy in common, to raise funds to cover the selling price.

Debt

Money that is owed or due.

Financing Statement

Notice of security interest filed under the UCC, Under revised Article 9 of the UCC, it is filed with the secretary of state in the state in which the lessee is incorporated.

OFAC

Office or Foreign Assets Control

Advance Payments

One or more lease payments required to be paid to the lessor at the beginning of the lease term. A lease, commonly paid "in advance," requires the first payment up-front. The lessor can negotiate any number of additional rentals to be paid in advance with the first month's rent.

Points

One percent or one percentage point (1.00 percent, a point also represents 100 basis points.

Underwriter

One who agrees to purchase any securities of an issue remaining unsold.

Attorney-in-Fact

One who has been given a power of attorney by another.

Guarantor

One who is obligated on a guaranty agreement.

Initial Direct Costs (IDC)

Only those costs incurred by the lessor that are 1) costs to originate a lease incurred in transactions with independent third parties that a) result directly from and are essential to acquiring that lease and b) would not have been incurred had that lease financing transaction not occurred; and 2) certain costs directly related to specified activities performed by the lessor for that lease.

End-of-Term Options

Options stated in the lease agreement that gives the lessee flexibility in its treatment of the leased equipment at the end of the lease term. Common options include purchasing the equipment, renewing the lease, or returning the equipment to the lessor. Options are sometimes given as an amendment to the lease documents and are not made part of the actual lease document. They may be a fixed dollar amount, a percentage of equipment cost, or fair market value.

OEM

Original Equipment Manufacturer

Progress Payments

Payments required by an equipment vendor or manufacturer before delivery of equipment to be leased. The progress payments lessen the outlay necessary for the vendor to purchase the equipment or the manufacturer to build the equipment and it adds an economic penalty if an order is canceled mid-stream.

Chattel

Personal property

Ultimate Net Loss (UNL)

Pools of shared risk. In a UNL loss pool, funds in the pool are used to cover the ultimate net loss, before repossession, resale, and legal remedies have been exhausted.

Portfolio Characteristics

Portfolio characteristics are the data elements used in portfolio segmentation and calculation of performance indicators.

Relative Value (RV)

Relative value is a method of determining an asset's value that takes into account the value of similar assets.

Right of First Refusal

Right of First Refusal (also called First Right of Refusal) document which requires that the lessor has the right to review and accept or refuse to accept all new applications from the vendor.

Risk-Based Pricing

Risk-based pricing is a method adopted by many lenders and lessors where the rate on a transaction is determined not only by the time value of money but also by an estimation of the probability of default.

Collateral

Security, usually property (real, personal or intangible), pledged to secure the performance of an agreement.

EFA

See Equipment Finance Agreement

Portfolio Segmentation

Segmentation is the division of the portfolio and market data into subsets or groupings consisting of specific characteristics and concentrations for further analysis. Each lessor approaches market and portfolio segmentation in a manner that fits their particular company strategy. There are numerous varieties in approach to segmentation, for example, a company may segment by industry, by company size, by number of employees, by revenue, or by number of assets on lease.

Forbearance Agreements

Similar to extensions, used allow a lessee some "breathing room."In many cases, the lessor may require a change to the terms of the lease (rate, collateral, additional guarantors, etc.) to agree to forbearance.

Standard Industrial Classification (SIC)

Standard Industrial Classification (SIC) codes are four digit codes used for classifying business by industry. Although replaced by the more flexible six digit NAICS coding system, the SIC code is still widely used for industry classification in the private sector. The Occupational Safety and Health Administration (OSHA) website continues to maintain a SIC Manual.

FASB 13

Statement of Financial Accounting Standards No. 13 issued by the Financial Accounting Standards Boards. This statement set forth the generally accepted accounting procedures for lessor and lessee accounting and financial statement reporting. The statement established criteria by which leases were classified as either a capital lease or an operating lease and is now replaced by ASC 842.

Portfolio Performance Indicators

Statistical measurements used to compare historical norms to business goals and identify trends in a portfolio.

Blind Discount Program

Subsidized rate arrangements such as O percent financing for a customer.

Personal Property

Tangible personal property as defined by IRS Section 38 and retention of right, title, and interest includes its assignment to another lessor or creditor.

TEFRA

Tax Equity and Fiscal Responsibility Act of 1982

NAICS

The North American Industry Classification System (NAICS) is the standard used by federal statistical agencies in classifying business establishments standard purpose of collecting, analyzing, and publishing statistical data related to the U.S. business economy. [source: https://www.census.gov/eos/www/naics/

Forbearance

The action of refraining from exercising a legal right, especially enforcing the payment of a debt. "Forbearance."

Gross Investment

The aggregate of the minimum lease payments receivable by a lessor under a capital lease and any unguaranteed residual value accruing to the lessor.

Principal

The amount borrowed or the superior authority in a relationship.

Tenor

The amount of time left for repayment or until the expiration of a financial contract.

Factoring

The assignment by a lessee or debtor of accounts receivable to a lessor or creditor as collateral for a specified term and payment amount, resulting in liquidity, Which can be used to improve cash flow or make capital equipment acquisitions.

Agreement

The bargain of the parties in fact as found in their language or by implication from other circumstances.

Common Law

The body of law developed through custom and usage as recognized and espoused by the courts.

statutory Law

The body of law enacted by legislatures.

expected Loss

The calculation used by bank lessors as part of the collateral assessment of risk for large-ticket transactions. %PD * LGD* EAD = Expected Loss

Cost of Debt

The costs incurred by a firm to fund the acquisition of assets through the use of borrowings. THe firms' cost of debt component is used in calculating the firm's overall weighted-average cost of capital.

Ballment

The delivery of ones' personal property to another with an obligation upon the recipient to return it. A lease is a type of bailment.

Unearned Income

The difference between the gross investment and the asset cost under a capital lease represents the unearned income that will be recognized as income over the term of the lease.

Implicit Interest Rate

The discount rate that equates the present value of the minimum lease payments and any unguaranteed residual to the fair value of the leased property, minus any investment tax credit retained by the lessor.

Present Value

The discounted value of a payment or stream of payments to be reserved in the future, taking into consideration a specific interest or discount rate. The present value represents a series of future cash flows expressed in today's dollars.

Unguaranteed Residual

The estimated residual value of the leased property exclusive of any portion guaranteed by the lessee or by a third party unrelated to the lessor. If the guarantor is related to the lessor, the residual value is considered unguaranteed.

Call

The exercise of a call option.

Residual Value

The expected value of leased equipment at the end, or termination, of the lease.

Microservices

The external application services used to conduct business. These services may be accessed directly via their online applications, or by integrating with internal systems. Examples include services to calculate sales tax, perform UCC lien searches, and pull consumer credit bureaus. Sometimes referred to as APIs.

Bankruptcy

The financial condition of insolvency, particularly when such solvency has resulted in the tins of a petition for reorganization or liquidation inter Title 11 of the United States Code.

Lease Term

The fixed. Con-cancelable term of the lease plus The period covered by bargain renewal options; The period covered by a renewal when a significant penalty for failure to renew exists; Ordinary renewal periods if they occur during a time when the lessee Continues to guarantee the lessors debt related to the property; Renewal periods that precede a bargain purchase option; Renewal periods that are at the option of the lessor. The lease term does not extend beyond the date a bargain purchase option becomes exercisable or beyond the useful life of the leased asset.

Appreciation

The increase in the value of an asset over time.

Contingent Rentals

The increases or decreases in lease payments that result from changes occurring subsequent to the inception of the lease in the factors (such as the amount of future use, percent of future sales) on which lease payments are based.

Consideration

The inducement to a contract; the value given for a contract. Consideration may be money, property, a promise, forbearance or any other thing, act, benefit, or value.

Application Programmable Interfaces (APIs)

The means to which different disparate systems can integrate with each other. For example, they allow systems of record to talk to services such as credit bureaus, UCC providers, tax rate servicers, eSignatures, and more. Also referred to as microservices.

Closing

The meeting at which all parties to a transaction sign and exchange all documents necessary to finalize the transaction.

Tax Accounting

The method of accounting used to report a company's financial activity for tax reporting purposes, as prescribed by the IRS.

Broker

The middleman who brings together lessors or funding sources, lessees, and vendors for the purpose of executing a transaction and who receives a commission for such service. The fee for service is known as the broker's fee.

Current Expected Credit Loss (CECL)

The new accounting standard to forecast all future losses on the current portfolio.

Orderly Liquidation Value (OLV)

The orderly liquidation value (OLV)is typically part of an appraisal of hard tangible assets (ie., equipment), it is an estimate of the gross amount that the tangible assets would fetch in an auction-style liquidation with the seller needing to sell the assets on an "as-is where is" basis. The term orderly implies that the liquidation would allow for a reasonable time to identify all available buyers and the seller would have control of the sale process.

Lessor

The owner of the equipment that is the subject of a Lease Agreement.

Lease Payment

The periodic payment made during the lease term. Such payments are frequently a level amount paid periodically over the lease term, but it is not uncommon for a lease to have a skip payment, or to be otherwise contoured to fit. For example, the seasonal fluctuations of a lessee's income. (Generally, leasing may provide for more creativity in this regard than a loan).

Venue

The physical location, or specifically the court, which will hear a legal dispute between parties.

Complaint

The plaintiff's initial, formal version of its lawsuit against a defendant.

Fair Value of Leased Property

The price the property could be sold for in an arm's length transaction between unrelated parties.• Normal selling price, net of volume or trade discounts, for a lessor who is a manufacturer or dealer.• Cost, net of volume or trade discounts for a lessor that is not a manufacturer or dealer (if the item has been held for a significant period, fair value is determined in light of prevailing market conditions.) Thus, fair value may be greater or less than the cost or carrying amount of the property.

Probability of Default (PD)

The probability of default provides an estimate of the likelihood that a borrower will be unable to repay debt obligations.

Lease Origination

The process of uncovering, developing, and consummating lease transactions. Steps in the process could include, but are not limited to, prospecting for new lease business, pricing potential transactions, performing credit reviews, and completing the necessary documentation.

Cross-Border Leasing

The providing of leasing or financing by a funder in one country for a lessee or borrower in another country. Such transactions are subject to each country's applicable tariffs.

Yield

The rate of return to the lessor in a lease investment

Running Rate

The rate of return to the lessor, or cost to the lessee, in a lease based solely upon the initial equipment cost and the periodic lease payments, without any reliance on residual value, tax benefit, deposits, or fees. This rate is also referred to as the "stream rate.

Quick Ratio

The ratio between current assets (less inventory) and current liabilities as shown on a balance sheet. Also referred to as the acid test. This test indicates a party's liquidity.

Acid Test

The ratio between current assets (less inventory) and current liabilities as shown on a balance sheet. This test provides some indication of a party's liquidity.

Current Ratio

The ratio of current assets to current liabilities.

Book to Tax Adjustment

The reconciliation of book and taxable income and deductions. Differences exist because of the differences between Generally Accepted Accounting Principles and tax law.

Tax Reform Act Of 1986 (TRA '86)

The tax law that affected a major overhaul of the U.S. tax system by lowering the MACRS (Modified Accelerated Cost Recovery System), repealing the Investment Tax Credit (ITC); and repealing the transitional finance lease rate.

Early Termination

The termination of a lease before the end of its original term.

Credit Line

The total amount of credit a financial institution makes available to one of its debtors.

Net Present Value

The total discounted value of all cash inflows and outflows from a project or investment.

Contract

The total legal obligation, which results from an agreement.

Internal Rate of Return (IRR)

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

Lessee

The user of the equipment that is the subject of a Lease Agreement.

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 and under similar terms and conditions. simply, the actual market value of the leased asset.

Stipulated Termination values

The value of leased property at given points in time during the lease term as agreed by both lessor and lessee. This is used for purposes of determining liability upon early termination of the lease.

Residual

The value of the leased property at the end of the lease term as estimated at the time the lease is executed; term value. Although the terms "residual value" or "erm value" are sometimes used in reference to the actual value of the property at the conclusion of the term, the term "realized value" is the more commonly used and more appropriate term for the actual value of the property at the conclusion of the lease term.

Waiver

The voluntary relinquishment of a known right.

Power of Attorney (POA)

This is written authorization to act on behalf of another for specified actions.

Invoice Factoring

This product is also called accounts receivable financing, invoice financing, or factoring. It doesn't involve any financing; instead, this solution accelerates the cash flow of the business in exchange for a slight discount on the face value of the invoice.

Executory Costs

Those costs such as insurance, maintenance, and taxes incurred for the leased property, whether paid by the lessor or lessee. Amounts paid by a lessee as consideration for a guarantee from an unrelated third party of the residual value are also executory costs. If the lessor pays executory costs, any lessor's profit on those costs is considered the same as executory costs.

Indemnify

To reimburse another for a loss.

Assign

To transfer or exchange future rights. In leasing, the right to receive future lease payments is usually 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.

Continuation Statement

UCC-3 Continuation Statement is the amendment used to extend the effectiveness of a UCC-1 beyond the date which is five years after the date of its filing.

Foreign Sales Corporation (FSC)

Under the U.S. Internal Revenue Code, a Foreign Sales Corporation (FSC) was a type of tax device that allowed companies to receive a reduction in U.S. federal income tax for profits derived from exports.

Basis Point

Units of 1 percent with each unit being 0.01 percent (1/100 percent (e.g., "50 basis points" is one-half of one percent).

Loss Reserves

Valuation reserve against total leases or leans on the balance sheet, representing the amount thought to be adequate to cover estimated losses in the portfolio. This fund may consist of actual cash from the lessor or borrowed money. When a lease or loan is charged off, it is removed from the portfolio as an earning asset, and its book value is deducted from the reserve account for loan losses.

Loan Loss Reserve Fund

Valuation reserve against total leases or loans on the balance sheet, representing the amount thought to be adequate to cover estimated losses in the portfolio. This fund may consist of actual cash from the lessor or borrowed money. When a lease or loan is charged off, it is removed from the portfolio as an earning asset and its book values deducted from the reserve account for the loan losses. Recoveries from the liquidation of collateral repossessed from the lessee are credited to the reserve account. The Tax REform Act of 1986 disallowed the tax deduction of loan loss reserves held by banks with assets over $500 million.

Book Value

Value according to accounting records, which may or may not be real market value.

VIN

Vehicle Identification Number

Vendor Program

Vendor programs are a relationship with a manufacturer and seller of equipment.

Working Capital

Working capital loans are short-term, unsecured loans for business owners in need of access to funds to run or grow their businesses.

Remarketing

the process of selling or leasing the leased equipment to another party upon termination of the original lease term or default by the lessee. The lessor can remarket the equipment or contract with another party, such as the manufacturer, to remarket the equipment in exchange for lease renewal payments.

Incremental Borrowing Rate

the rate that , at the inception of the lease, the lessee would have incurred to borrow, under like terms, the funds necessary to purchase the lease asset.

Cost of Capital

the weighted-average cost of funds that a firm secures from both debt and equity sources to fund its assets.

Indemnification

to indemnify (compensate for damage or loss) and hold lessor fully harmless from and against any such claim, including all costs of defense and attorney fees.