In our ever continuing quest to provide information about equipment leasing and answer your questions about equipment leasing, below please find some common terms and equipment leasing definitions.

The lessee's acknowledgement that the equipment to be leased has been received and is in satisfactory condition. For the lessee's protection, funds will not be released to your vendor until Rapid Solution Leasing, Inc. has received your written “delivery and acceptance” form and been able to confirm your acceptance by telephone.

Typically 1-2 payments are required at the beginning of the lease term. The total number of payments during the lease, are reduced by the advance payments.

This program uses a streamlined credit application and review process, that only requires the submission of a single-page application with basic information about the business' principals, bank, and trade references. This type of program does not require financial statements, tax returns, business plans, or other more detailed disclosures.

A capital lease is not a true lease, but rather a sale of equipment by the lessor to the lessee. When property is purchased it is capitalized and recorded both as an asset and as an obligation. The lessee may be eligible for the IRS Section 179 deduction. A capital lease meets one or more of the following criteria: The lessor transfers ownership to the lessee during the lease term The lease contains the option to purchase the asset at a bargain price The lease term is equal to 75% or more of the estimated economic life of the property The present value of minimum lease rental payments equals 90 percent or more of the fair market value using lessee's incremental cost of borrowing.

A closed-end, or "walk-away" lease is usually structured on a net-lease basis. At the end of the lease the property reverts back to the lessor. Ownership possibilities are "closed" to the lessee.

This is similar to a down payment on a house and can be in the 1 to 2 percent range of the total equipment costs. It is usually applied towards the costs of a rental or returned if the lease application is declined. It is sometimes accompanied by a Commitment Letter, which spells out the line of credit in a master lease.

The initial lease payments are deferred 60, 90 or 120 days to accommodate cash flow and capital budgeting requirements.

Assuming that the lessee is not in default, an option at the end of the lease to buy the leased property for $1.00.

The effective lease rate (for the lessee) of the cash flows resulting from a lease transaction. To compare this rate with a loan interest rate, a company must include in the cash flows any effect the transactions have on federal tax liabilities.

This is a wire transfer of money, usually from the Lessor to the equipment vendor for the amount specified in the lease agreement.

Options for what happens to the equipment after all payments have been made. Typical options are the $1 Buyout, Fair Market Value (FMV), Purchase Upon Termination (PUT), Equipment Return, and Continued Leasing.

A document that describes in detail the equipment being leased. It may also state the lease term, commencement date, repayment schedule and location of the equipment.

This is what the leased equipment would be worth on the open market at the termination of the lease. The lessee usually has the option to purchased the leased equipment at the end of an agreement at the Fair Market Value price.

Sometimes a company may want to extend a lease. Often the payment structure will be reworked to reflect the fair market value of the equipment at the time the lease expires.

This lease is also referred to as a conditional sales contract. It's typically non-cancelable although it offers the lessee the ability to acquire title to equipment at an agreed upon rate such as $1 or the fair market value.

The lessee agrees to pay the full cost of equipment plus an agreed upon interest rate over the life of the equipment lease.

A document prepared by the Lessor which is signed by the Lessee's landlord which gives up any rights he may have in the leased equipment at the Lessee's place of business. This waiver allows the Lessor to remove the equipment in case of default or at end of lease. It also protects the Lessor in cases where leased equipment is attached to real property.

The Lease Commencement Date is the date equipment is accepted by the Lessee as evidenced by Lessee's execution of an Acceptance Certificate.

A written agreement between the Lessor and Lessee that outlines the basic terms and conditions of a specific lease transaction. Both parties sign this proposal, and it is subject to credit approval.

The simple equivalent interest rate excluding depreciation and residual, if any.

Numerical factor multiplied by total cost of equipment to compute periodic rentals.

A party who makes use of property owned by another party (the Lessor) and pays the Lessor, usually in the form of rentals, for that use.

Company or leasing entity that is legal owner of the leased equipment.

Equal payments over the term of the Lease.

An open-ended lease agreement under which a Lessee obtains the use of specific property and can add additional equipment periodically. Eliminates signing new leases as additional equipment is leased.

With a Net Lease, the rentals are payable to the Lessor. All costs in connection with the use of the equipment are to be paid by the Lessee and are not a part of the rental. For example, taxes, insurance, and maintenance are paid directly by the Lessee.

Financing that does not add debt to a company's balance sheet.

Any lease that is not a capital lease. These are generally used to acquire off-balance sheet financing, and whereby the Lessee anticipates returning the equipment to the Lessor at the end of the term.

Many vendors require that they be paid at least 50% of the invoice amount once the lease is funded. This is called prefunding. It must be approved by the funding source. For Pre-Funding to be accepted, both the vendor and lessee must be stable for acceptance.

A Security Deposit is an advance payment that is usually equal to two lease payments,. This deposit is retained by the Lessor for the term of the Lease. If the lease is never finalized for reasons that are not the fault of the Lessor, the deposit will be kept by the Lessor for administrative costs. If any part of the deposit is remaining at the end of the Lease term and the Lessee has completed all of his / her obligations, the Deposit is returned to the Lessee or can be applied to the Purchase Option, if any, or to any remaining payments.

Lease payments that are “adjusted” to accommodate a business' cash flow seasonality. Payments are set lower for the business' “slower” or “off-season” months and set slightly higher during months of the business' traditionally stronger cash flow.

Freight, software, labor and other intangible items are frequently defined as soft costs. Many funding sources will only allow a certain percentage of the total transaction to be soft costs. Because these costs can generally not be recovered in case of default, they increase the inherent risk of the lease.

Lease payments are stepped up (or down) to accommodate the lessee's anticipated cash flow pattern as the company begins to see its return from the acquired equipment.

Many of the benefits of a true lease, but designed specifically for over-the-road vehicles like trucks, tractors & trailers. Special provisions of the tax code allow for pre-determined end-of-lease valuations (unlike a true or FMV lease). Generally the most aggressive pricing for specified equipment. May include FMV or continued rental options.

A True Lease is a transaction that qualifies as a lease under the Internal Revenue Code. This lease functions so that the Lessee can claim rental payments as tax deductions and the Lessor can claim tax benefits of ownership such as depreciation.

Documents filed (in accordance with the Uniform Commercial Code ) in each state where the equipment is located in order to perfect a lessor's ownership interest in leased equipment.

The protocol and standards for administering, legalizing, and recording lien instruments. Adopted now by all states except Louisiana.

The period of time during which an asset will be usable and have some economic value. To qualify as an operating lease, the property must have a remaining useful life of 25 percent of the original estimated useful life of the leased property at the end of the lease term, and life of at least one year.

A partnership between a funding source and manufacturer or dealer to offer leasing to their customers.

If you're considering a lease, please consider Rapid Solution Leasing, Inc.