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Need to define a word or term?

Basis Point - A measurement equal to one hundredth of one full percent of interest (1 basis point equals 0.01%)

Capital Lease - A lease classified and accounted for by a lessee as a purchase and by the lessor as a sale or financing. According to FASB 13, a lease is a Capital Lease If it meets the following criteria: (a) the lessor transfers ownership to the lessee at the end of the lease term; (b) the lease contains an option to purchase the asset at a bargain price; (c) the lease term is equal to 75 percent or more of the estimated economic life of property; or (d) the present value of minimum lease rental payments is equal to 90 percent or more of the fair market value of the leased asset. (See Finance Lease).

Collateral - Any property designated as security for the payment of a debt or for execution of a contract.

Conditional Sale - A purchase agreement that presumes the customer to be the owner of the equipment immediately upon signature - provided all payments/conditions are met.

Certificate of Acceptance or Delivery and Acceptance - This document is executed by the lessee after the equipment has been delivered and installed.

Fair Market Value - The value of an asset at the termination of the lease, often determined by agreement between lessor and lessee, or alternatively by appraisal or open bidding.

Finance Lease - General term applied to most types of equipment leases. Typically, a finance lease is a full payout, non-cancelable agreement, and the lessee is responsible for maintenance, taxes and insurance. (See also Capital Lease.)

Financing Statement - Under the Uniform Commercial Code (UCC), a financing statement (UCC-1 Form) reflects a security interest in, or claim to, specified personal property. The statement names the secured party or lessor and the debtor or lessee. When the secured party or lessor files the financing statement with the secretary or other appropriate public office, it becomes public record and perfects lien rights.

Full Payout Lease - A lease in which the payments made to the lessor will return the cost of the leased asset, plus the cost of financing and an acceptable return on the investment.

Guarantee - An agreement to obligate oneself for the debt of another. A guarantee by an individual is called a personal guarantee, and by a corporation, a corporate guarantee. The guarantor is obliged to pay the obligation in the event of default by the entity being guaranteed.

Hell-or-High-Water - The obligation of the lessee to make payment is unconditional regardless of the leased assets or lessors performance.

Incumbency Certificate - This document identifies the individuals and titles for those individuals who are authorized to execute documents and bind the corporation. This document usually contains specimen signatures of the authorized signatories.

Investment Grade Credit - A company whose financial condition has been rated by Moody's Investor Services, Standard and Poor's or equivalent rating agency, and classified as Aaa-Baa2 by Moody's or AAA-BBB by Standard and Poor's.

Lease - A contract by which the owner of property (lessor) grants to another (lessee) the right to possess and use the property for a specified period of time in exchange for a stipulated periodic payment (rent).

Lease Assignment - The lessor assigns the lease to another party giving the assignee the rights, powers, privileges and remedies specified in the lease.

Lease Factor - The rate used to determine a payment for a given equipment cost - usually expressed as a decimal fraction which is multiplied by the equipment cost (e.g. 0.025 x $100,000 = $2,500).

Lessee - An individual, partnership or corporation that pays the owner (lessor) for the use of an asset, but does not own it.

Lessor - The company that owns the equipment and leases it to the lessee.

Master Lease - Continuing lease agreement which provides for property becoming subject to their terms of a single lease over a period of time. Schedules are added to reflect property becoming subject to the terms of the master lease.

Non-recourse lease discounting - The purchasing of a stream of payments or the making of a loan, where the loan amount is determined by the present value of the rental payments discounted at the bank's targeted yield, whose collateral is (1) the Lessee's hell-or-high-water obligation to make the payments and (2) the item being leased.

Triple Net Lease - A lease where the payment does not include insurance, tax or maintenance. Typically the lessee assumes the obligation to pay these amounts in addition to the lease payment.

Off-Balance Sheet - A leasing or receivable sales transaction in which neither the asset or the lease contract or other liability is shown on the lessee's or seller's balance sheet. A lease is considered off-balance sheet to the lessee when the agreement is not a capital lease under the FASB 13.

Operating Lease - A lease in which a lessee can acquire the use of equipment for a term that is less than the equipment's useful life. At the expiration of the initial lease, the lessor depends on the residual value to pay out its investment and realizes a profit based on the residual value of the equipment (through either renewals or sale).

Present Value - Refers to today's value of money based upon the receipt of money in the future, typically through the monthly, quarterly, semi-annual or annual payments.

Sale and Leaseback - A transaction where property is sold to a party on the condition that it is immediately leased back to the seller.

Sales/Use Tax - A state tax on leased equipment based on the amount of the monthly lease payment.

Treasury Note - An obligation of the US Government with a maturity of one to five years. (The yield on this note serves as a basis for funding costs.)

True Lease - A transaction that qualifies, under the general provisions of the Internal Revenue Code, as a lease so that the lessee can claim lease payments as tax deductions and the lessor can claim tax benefits of ownership, such as depreciation. At the expiration of a conventional true lease, the lessee can purchase the equipment for the fair market value, return it to the lessor, or renew the lease. An example of such a lease is a Fair Market Value (FMV) lease.

Uniform Commercial Code (U.C.C.) - A compilation of statutory provisions designed to simplify, clarify and modernize the law governing commercial transactions.

U.C.C.-1 - The form used under the Uniform Commercial Code to record security interest and collateral or commercial equipment with a state department of commerce or a county clerk.

U.C.C.-3 - The form used to formally terminate the record of security interest in a piece of commercial equipment.

This glossary is provided as a basic guideline for terms commonly used in the leasing industry. You should not rely on the definitions provided herein when making lease decisions, but instead on the advice and direction of your business and legal counsel.


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