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Glossary of Terms A B C D E F G H I J K L M N O P Q R S T U V W X Y Z
: : : : : : : : : : : : A : : : : : : : : : : : : Add-On An add-on is a type of transaction that adds related equipment to an existing lease. Typically, the term "add-on" is used when this additional equipment is being financed using the same terms--such as $1 Out Lease--that were used for the original transaction. The only difference is that the length of the add-on is not the same as in the original transaction. It is almost always a shorter period of time, expiring on the same date (coterminously) as the lease for the original transaction. Advanced Payments This term refers to the one or more payments that must be paid to the leasing company at the beginning of the lease term. Most common are first payment or first and last payment due in advance where they are subtracted from the total amount of payments due. Amortization Amortization refers to the distribution of the cost of an asset over its useful life. Amortization also refers to the process of reducing a debt obligation through periodic level payments that include both an interest and principal portion. Annual Percentage Rate (APR) The term APR indicates the true, or effective rate of interest being paid on a loan when compounding of interest and the costs of various fees are taken into account.
: : : : : : : : : : : : B : : : : : : : : : : : : Bargain Purchase Option A lease provision allowing the lessee to purchase the leased property at the end of the lease term for a price that is significantly lower than the expected fair market value of the property. Basis Point A basis point is a unit of measurement equal to 1/100th of a percent. The term "basis point" is used to describe the constant changing cost of funds for lenders. Buyout This term indicates the amount a customer leasing the equipment must pay in order to terminate the lease in advance of the expiration date. This amount is calculated to include remaining principal, interim interest, and any payoff penalties.
: : : : : : : : : : : : C : : : : : : : : : : : : Capital Lease In order for a lease to qualify as a Capital Lease it must meet one of the following criteria:
The customer leasing the equipment under a capital lease typically treats it as a traditional loan and, for accounting purposes, it is treated as an acquisition of an asset and liability. Coterminous This term refers to two or more leases that are originated at different times, but are jointly billed and will terminate on the same date.
: : : : : : : : : : : : D : : : : : : : : : : : : Depreciation Depreciation is the gradual loss of value of a building or other property because of age or natural wear and tear. This is a tax deduction claimed by the owner of the equipment to spread the cost of the equipment over its estimated useful life rather than deducting the entire cost the year it is purchased.
: : : : : : : : : : : : F : : : : : : : : : : : : Fair Market Value The price an item would sell for, assuming the buyer and seller both have reasonable knowledge of the item's worth and are not under pressure to buy or sell. Fair Market Value Lease This type of lease includes the options through which the person or company leasing the equipment has three choices. The individual or organization may either renew the lease at a fair market value renewal rate; purchase the equipment for its fair market value at the end of the lease term; or return the equipment. Finance Lease A lease of this type is used to finance the purchase of equipment; it is not, therefore, a true lease. Finance leases are generally considered to be capital leases from an accounting perspective. Fixed Purchase Option An option given to the lessee to purchase the leased equipment from the leasing company on the option date for a guaranteed price. Both date and the price must be determined at the beginning of the lease.
: : : : : : : : : : : : L : : : : : : : : : : : : Lease A written agreement in which the property owner allows a lessee to use property in exchange for rent, and for a specified period (lease term). Lease Purchase Agreements These are full-payout net leases with a term reflecting the equipment's estimated useful life. Because many lease purchase agreements include a bargain purchase option--providing for the purchase of the equipment for $1 at the expiration of the lease--lease purchase agreements often are referred to as 'dollar buyout' or 'buck-out' leases. Lease purchase agreements are generally considered capital leases from an accounting perspective and non-tax leases from a tax perspective due to their bargain purchase option features and the length of their terms. Lessee A lessee is the party to a lease agreement who is obligated to pay rental installments to the lessor and is entitled to use and possess the leased equipment during the lease term. Lessor The lessor is the party to a lease agreement who has legal or tax title to the equipment and grants the lessee the right to use the equipment for the term of the lease and is entitled to receive all rental payments.
: : : : : : : : : : : : M : : : : : : : : : : : : Master Lease A continuing lease arrangement whereby additional equipment can be added from time to time merely by describing that equipment in a new lease schedule executed by the parties. The original lease contract terms and conditions apply to all subsequent schedules.
: : : : : : : : : : : : O : : : : : : : : : : : : Off-Balance Sheet Financing A lease that qualifies as an Operating Lease for the lessee's financial accounting purposes. Such leases are referred to as "off-balance sheet financing" due to their exclusion from the balance sheet asset and debt presentation, except for that portion of the payments that is due in the current fiscal period. Lease payments are recorded on the income statement as expense items. Operating Lease This lease is treated as a true lease--rather than a loan--for accounting purposes. An operating lease is accounted for on balance sheets without showing the equipment as an asset or the lease payment as a liability. Payments are accounted for as operating expenses.
: : : : : : : : : : : : P : : : : : : : : : : : : Payment In Advance This term refers to periodic payments due at the beginning of each period. Payment In Arrears This term refers to periodic payments due at the end of each period. Present Value Present value is the discounted value of a payment or stream of payments that will be received in the future, predicated on a specific interest or discount rate. Present value represents a series of future cash flows expressed in terms of today's dollars. Purchase Option This is an option that permits the customer leasing the equipment to purchase it for a fixed value or at fair market value from the owner, usually as of a specified date. Purchase Upon Termination PUT as it is often referred to as, is an agreement by the lessee to purchase the property at the end of the lease term for a fixed amount. A lease with a PUT is a Capital Lease and not an Operating Lease.
: : : : : : : : : : : : R : : : : : : : : : : : : Residual Value The value of the leased property at the end of the lease term as estimated at the time the lease was executed
: : : : : : : : : : : : S : : : : : : : : : : : : Sale-Leaseback This term represents a type of transaction involving the sale of equipment to a leasing company and the subsequent leasing of the same equipment to the original owner, who continues to use the equipment. Skip-Payment Lease This type of lease contains a payment stream requiring the person or company leasing the equipment to make payments only during certain periods of the year.
: : : : : : : : : : : : T : : : : : : : : : : : : Tax Lease This is a generic term for a lease in which the owner of the equipment assumes the risks of ownership, as determined by the IRS, and is thus entitle to the benefits of ownership, including tax benefits.
: : : : : : : : : : : : U : : : : : : : : : : : : Useful Life This term, often referred to as 'economic life,' refers to the period of time during which an asset is usable and has economic life. |
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Team Financial Group, Inc. | 3391 3 Mile Rd NW - Grand Rapids, MI 49534 | 1 (888) 607-8326
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