Acceptance (“Delivery & Acceptance”)
Add-On
Advance Lease Payments
Amortization
Application Only
APR (Annual Percentage Rate)
Assignment of Proceeds
Bargain Purchase Option
Basis Point
Capital Lease
Capped Fair Market Value Lease
Commitment Deposit
Commitment Letter
Coterminous
Dealer
Dealer Lease Referral Application and Agreement
Deferred Payment lease
Depreciation
Discount Rate
Electronic Funds Transfer (EFT – also known as ACH)
End of Lease Options
Estimated Useful Life
Fair Market Renewal Value
Fair Market Value (FMV)
Finance Lease ($1 Buyout, capital Lease or Bargain Purchase Lease)
Financial Accounting Standards Board 13
Fixed Purchase Option.
Full Payout Lease
Incremental Borrowing Rate
Insurance
Landlord Waiver
Lease
Lease Commencement
Lease Proposal
Lease Purchase
Lease Rate
Lease Schedule
Lessee
Lessor
Level Payments
Master Lease
Municipal Lease
Net Lease
Off-Balance Sheet Financing
Operating Lease
Pre-Funding
Progress Payments (Vendor Pre-Funding)
Purchase option
PUT Option (Purchase Upon Termination)
Rate Factor
Recourse (or “Vendor Recourse”)
Residual Value
Sale Lease Back
Seasonally Adjusted Lease Payments
Security Deposit
Skip-payment Leases
Soft Costs
Step Payment Lease
TRAC Lease
True Lease (Tax or Operating Lease)
Uniform Commercial Code (see Financing Statement – UCC1)
Useful Life
Usury
Working Capital


Acceptance (“Delivery & Acceptance”)
The lessee’s acknowledgement that the equipment to be leased as has been received and is in satisfactory condition. For the lessee’s protection, funds will not be released to your Dealer (supplier/vendor), until REEL has received your written “delivery and acceptance” form and been able to reconfirm same by telephone.

Add-On
A transaction to add related equipment to an existing lease. Typically, this term is used when the new equipment is financed using the same lease structure (i.e., Fair Market Value, $1.00 Purchase Option, Fixed Purchase Option, etc.) as was used in the underlying transaction except that the lease term for the add-on is set so that it expires conterminously with (on the same date as) the original transaction.

Advance Lease Payments
Most leases call for a specific number of lease payments in advance. 1-2 payments are typical requirements. The total numbers of payments during the lease are reduced by the advance payments. (Bank financing typically requires much larger “down payments,” typically 20-40% of the purchase price to close the loan along with “origination” and other fees).

Amortization
A breakdown of periodic loan payments into two components: a principal portion and an interest portion.

Application Only
A streamlined credit application and review procedure 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. REEL offers “Application Only” up to $150,000.

APR (Annual Percentage Rate)
The effective rate taking into account compounding and other fees. The nominal rate of interest for a specified period (usually one year).

Assignment of Proceeds
Under an Assignment of Proceeds agreement, the Dealer agrees to allow the Lessor to fund the manufacturer’s cost of the equipment directly to the manufacturer at the time of funding.

Bargain Purchase Option
An option given to the lessee (customer/end user of equipment) to purchase the equipment on lease at a price that is less than the expected fair market value so that, at the inception of the lease, it is reasonable to assume that the lessee will definitely purchase the equipment on the option date.

Basis Point
A unit of measurement equal to 1/100th of a percent. For example, 25 basis points = .25%.

Capital Lease
A lease that meets at least one of the criteria outlined in paragraph 7 of FASB 13 and, therefore, must be treated essentially as a loan for book accounting purposes. The four criteria are: title passes automatically by the end of the lease term. lease contains a bargain purchase option (i.e., less than the fair market value). lease term is greater than 75% of estimated economic life of the equipment. present value of lease payments is greater than 90% of the equipment’s fair market value. A Capital Lease is treated by the Lessee (customer/end user of equipment) as both the borrowing of funds and the acquisition of an asset to be depreciated; thus the lease is recorded on the lessee’s balance sheet as an asset and corresponding liability (lease payable). Periodic lessee expenses consist of interest on the debt and depreciation of the asset.

Capped Fair Market Value Lease
A Fair Market Value Lease with a predetermined ceiling to limit Fair Market exposure at the end of the lease term.

Commitment Deposit
A deposit required by the Lessor at time of signing which ranges from 1-2% of the total equipment cost, or the equivalent of the first rental payment. It is generally applied to rental on a pro rata basis if the commitment is taken down or returned if the lease is declined. REEL does not require a commitment deposit.

Commitment Letter
The letter prepared by the Lessor to spell out terms and conditions between Lessee (customer/end user of equipment) and Lessor for a master lease line of credit.

Coterminous
Two or more leases that are linked so that both will terminate at the same time.

Dealer
Supplier of equipment. Also referred to as supplier or vendor.

Dealer Lease Referral Application and Agreement
This one page agreement provides the Lessor with valuable information about the equipment Dealer (supplier/vendor). By means of this agreement, the vendor agrees to pass clear title to the equipment to the Lessor upon delivery, acceptance by the Lessee (customer/end user of equipment) and funding by the Lessor.

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

Depreciation
A tax deduction representing a reasonable allowance for exhaustion, wear and tear, and obsolescence, that is taken by the owner of the equipment and by which the cost of the equipment is allocated over time. Depreciation decreases the company’s balance sheet assets and is also recorded as an operating expense for each period. Various methods of depreciation are used which alter the number of periods over which the cost is allocated and the amount expensed each period.

Discount Rate
A certain interest rate that is used to bring a series of future cash flows to their present value in order to state them in current, or today’s, dollars. Use of a discount rate removes the time value of money from future cash flows.

Electronic Funds Transfer (EFT – also known as ACH)
A wire transfer in which the Lessor pays the equipment Dealer (supplier/vendor). At time of funding this amount is wired to the vendor minus any payments agreed upon in the Assignment of Proceeds.

End of Lease Options
What happens to the equipment after all payments have been made. Typical options are the $1 Buyout, FMV, PUT, equipment return, continued leasing and more. See individual option definitions elsewhere in this section (“Lease Terms”).

Estimated Useful Life
The period during which an asset is expected to be useful in trade or business.

  • Used for purposes of calculating the maximum allowable term of a tax lease
  • Used for determining whether or not the lease is a Capital lease
  • Used to determine the method of depreciation for a capitalized leased asset
  • May or may not be the same as the life used for income tax purposes

Fair Market Renewal Value
The rental payment paid monthly for a period of up to one year if the Lessee (customer/end user of equipment) elects to renew the lease once it has initially terminated. The value is determined by negotiation between Lessee and Lessor and represents the Fair Market Rental/Renewal Value.

Fair Market Value (FMV)
The open market value of the asset at the termination of the lease. A Purchase Option under a True Lease is generally the Fair Market Value at the end of the lease. Provides greater flexibility and lower monthly payments than the Finance Lease format. Key benefits include a number pre-set and end-of-lease options:

  • Return the equipment with no further obligation, or
  • Purchase the equipment for its fair market value, or
  • Re-lease the equipment for its fair market value, or
  • Continue leasing on a month-to-month basis

The FMV lease may also qualify as tax deductible operating expenses. Please consult your tax accountant.

Finance Lease ($1 Buyout, capital Lease or Bargain Purchase Lease)
These 4 terms describe leases that combine lower, fixed monthly payments with the guaranteed-in-advance right to purchase the equipment at the conclusion of the lease term at a pre-determined price. Generally, a Finance Lease is non-cancelable during the term of the lease; and the end-user is responsible for maintenance, taxes, insurance and other costs of ownership. For tax purposes this form of lease is usually considered a conditional sales contract. These leases generally do not qualify as deductible operating expenses and must be amortized and depreciated. There are, however, some significant other tax benefits under I.R.S. section 179 that may be available to your business. Please consult your tax accountant.

Financial Accounting Standards Board 13
Statement number 13 of the Financial Accounting Standards Board (FASB) which establishes standards for lessees’ (customer/end user of equipment) and lessors’ accounting and reporting for leases. This includes the characterization of a lease as an operating lease or capital lease for the lessee’s purposes.

A company’s assets, liabilities and net income will differ depending on how it chooses to structure its leases. The provisions of FASB 13 derive from the view that a lease that transfers substantially all of the benefits and risks of ownership should be accounted for as the acquisition of an asset and the incurrence of an obligation by the lessee (a capital lease) and as a sale or financing by the lessor. Other leases should be accounted for as the rental of property (operating leases).

Fixed Purchase Option.
An option given to the lessee (customer/end user of equipment) to purchase the leased equipment from the lessor on the option date for a guaranteed price. Both the date and the price must be determined at the inception of the lease. A typical fixed purchase option is 10% of the original cost of the equipment.

Full Payout Lease
A lease in which the cash flows will pay the Lessor the full equipment cost plus an agreed upon return over the lease term.

Incremental Borrowing Rate
The rate that, at the inception of the lease, the lessee would have incurred to borrow over a similar term the funds necessary to purchase the leased asset.

Insurance
Because leased equipment is technically owned by the lessor until the satisfactory conclusion of the lease term, (proof of) all risk/casualty insurance will be required showing the lessor as a “named insured.”

Landlord Waiver
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.

Lease
An agreement granting or letting the possession of land, building, machinery, personal property, etc., for a fixed or indeterminate period, for a stated consideration usually known as rent.

Lease Commencement
The Lease Commencement Date is the date equipment is accepted by the Lessee (customer/end user of equipment) as evidenced by Lessee’s execution of an Acceptance Certificate.

Lease Proposal
A written agreement between the Lessor and Lessee (customer/end user of equipment) that outlines the basic terms and conditions of a specific lease transaction. Both parties sign this proposal, and it is subject to credit approval.

Lease Purchase
Full payout, net leases structured with a term equal to the equipment’s estimated useful life. Because many Lease Purchases include a bargain purchase option for the lessee (customer/end user of equipment) to purchase the equipment for one dollar at the expiration of the lease, these leases are often referred to as dollar buyout or buck-out leases. Lease Purchases are generally considered to be Capital Leases from an accounting perspective and non-tax leases from a tax perspective due to their bargain purchase option and length of lease term.

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

Lease Schedule
A schedule to a Master Lease agreement describing the leased equipment, rentals and other terms applicable to the equipment.

Lessee
The party to a lease agreement who is obligated to pay the rentals to the lessor and is entitled to use and possess the leased equipment during the lease term.

Lessor
The party to a lease agreement who has legal or tax title to the equipment (in the case of a true tax lease), grants the lessee the right to use the equipment for the lease term and is entitled to receive the rental payments.

Level Payments
Equal payments over the term of the Lease.

Master Lease
One lease (and one credit approval) for several pieces of equipment purchased at different times from one or more Dealers. Once you have been approved REEL only requires brief addendums and equipment schedules for each new batch of equipment and eliminates the need to sign new leases. The original lease contract terms and conditions apply to all subsequent schedules. To be contrasted with a lease contract for a single transaction involving a specific unit of equipment, a Master Lease is essentially a line of credit to draw from over time in order to purchase equipment.

Municipal Lease
A lease designed to meet the special needs of state and local governments. The lease contains a non- appropriation clause which states that the only condition under which the entity may be released from its payment obligation is when the legislature or funding authority fails to appropriate funds. Since the lessee is a municipality or an organization supporting the government, it is exempt from paying federal income taxes. For this reason, the IRS does not charge the lessor income taxes on leases to these customers.

Net Lease
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 (customer/end user of equipment) and are not a part of the rental. For example, taxes, insurance, and maintenance are paid directly by the Lessee.

Off-Balance Sheet Financing
Financing that does not add debt to a company’s balance sheet. This can be extremely important to companies with bank other lender-imposed key operating ratio requirements. Under a true lease for example, the lessee (customer/end user of equipment) does not show the leased equipment as an asset (the lessee does not own the equipment, nor does the lease structure contemplate ownership), nor therefore, is the lessee required to report the corresponding long term liability. See the “True Lease” definition in this section.

Operating Lease
Any lease that is not a capital or finance lease. See FMV lease (above)

Pre-Funding
Many Dealers (suppliers/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 dealer and lessee (customer/end user of equipment) must be stable for acceptance.

Progress Payments (Vendor Pre-Funding)
A special kind of lease for Dealers (suppliers/vendors) who require up to 100% of the selling price prior to delivery. (Most leases are designed to fund your equipment vendors immediately after you confirm that the equipment that you ordered has been received in satisfactory order.) Some vendors, however, require that specially ordered, configured or manufactured-to-order equipment be paid for in stages ranging from small up front, order-confirmation deposits, to multiple “progress payments” as the order gets closer to shipping to full-prepayments. REEL can accommodate almost any equipment vendor’s pre-payment requirement.

Purchase option
See “End of Lease Option.”

PUT Option (Purchase Upon Termination)
A specialized option, that can be offered in conjunction with an FMV lease that requires a purchase of the equipment at the conclusion of the lease at a fixed-in-advance percentage of the original purchase price (e.g. 10%).

Rate Factor
Once the equipment cost has been determined, the actual monthly lease payment (before tax and one-time fees) can be computed by multiplying “the factor” (usually expressed as a 5-digit, decimal number) by the equipment’s cost.

Recourse (or “Vendor Recourse”)
Generally applies to the funding source (lessor’s) right to require the manufacture or distributor take back and/or take responsibility for re-marketing equipment that is not paid for as a result of default by their customer(s), the lessee. Note: REEL does not require recourse” agreements with its vendors

Residual Value
The remaining (market) value of the equipment at the end of the lease term.

Sale Lease Back
A transaction that involves the sale of equipment back to REEL and a subsequent lease of the same equipment back to the original owner, who continues to use the equipment. This is also a technique for re-capturing cash previously expended on equipment. Selling that equipment to REEL enables the company to lease that same equipment for a period of 12 to 60 (or more) months. REEL will readily “buy back” most any equipment that has been purchased new, within the previous 90 days based on the manufacturer/dealer’s original invoice(s). Older or used equipment may be subject to an independent valuation appraisal prior to funding.

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

Security Deposit
An amount paid at the beginning of the lease that is held by the lessor until the satisfactory payment of all amounts due under the lease terms, at which time the security deposit amount is returned to the lessee.

Skip-payment Leases
The lessee selects a series of months in which no-payments will be due.

Soft Costs
Shipping, freight, installation, maintenance, training, supplies and software are items that are frequently defined as soft costs. REEL includes all soft costs into the lease payment.

Step Payment 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. E.g. payments might be lower initially to allow a company to start generating profits from the use of the equipment.

TRAC Lease
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.

True Lease (Tax or Operating Lease)
A true lease, by definition, does not call for the full payout of the equipment cost during the lease term, nor does a true lease contemplate a transfer of title following the conclusion of the lease. A True Lease is a transaction that qualifies as a lease under the Internal Revenue Code. The lessee (customer/end user of equipment) is only “paying for the equipment during a portion of that equipment’s useful life. Hence the lease payments are often treated as 100% tax deductible operating expenses and the Lessor can claim tax benefits of ownership such as depreciation. The lease generally does not appear on the balance sheet as a business asset or as a business liability. This type of lease also offers the lowest payments for a given term. A true lease may (but does not have to) include an FMV (fair market value) option which allows the lessee to purchase (take full ownership of) the equipment for its legitimate fair market value at the time the lease terminates.

Uniform Commercial Code (see Financing Statement – UCC1)
A standardized program and method of administering, legalizing and recording lien instruments adopted now by all states except Louisiana.

Useful Life
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.

Usury
Many states have passed laws that limit the interest rate that can be charged on loans. These laws are called “Usury Laws”. In states such as Texas, Arkansas, Florida and Nebraska, $1.00 buyout leases are also subject to Usury and, as such, leasing companies have either refused to write such leases in these states or require certain addendums or additional documentation.

Working Capital
In (basic) accounting/financial terms working capital is defined as current assets-current liabilities. It is one measure of a business’ “ready cash.” Leasing conserves working capital by allowing a business to better match (time) its expenses for the acquisition of equipment to the revenue generated by that that equipment generates. (Why pay in advance?)

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