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Leasing provides a flexible, innovative, and cost-effective method of
obtaining the assets your company needs to remain competitive and
profitable in today's marketplace.
To help you maximize the benefits you can receive from leasing,
it is helpful to have a good understanding to the basic terms used
in leasing today. This glossary has been complied to help you
wade through the terms and issues you will encounter as you are
evaluating your leasing options.
Contact MLC today and find out how we can help you. Call 1-800-827-5711
or Email us at info@mlcgroup.com.
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Add-On
ADR System
Advance Payments
Alternative Minimum Tax (AMT)
Amortization
APR (Annual Percentage Rate)
Arrears Lease Payment
Asset Class Life
Assignment
Automated Clearinghouse (ACH)
Balloon Payment
Bargain Purchase Option
Basis Point
Broker
Buy-Out
Call Provision
Capital Assets
Capital Lease
Captive Lease
Certificate of Acceptance
Closed-End Lease
Co-Lessee
Collateral
Collection Guarantee
Comprehensive General Liability Insurance
Conditional Sale (Time Sale)
Confession of Judgment
Corporation
Coterminous
Credit
Credit Bureau Report
Credit Investigation
Cross Corporate Guaranty
Debt Coverage Ratio
Debt Participant
Default
Deliver and Acceptance (D&A)
Depreciation
Depreciation Basis
Direct Debt
Direct Finance Lease
Discount Rate
Division
Documentation Fee
Dollar Buyout
Down Payment
Draft
Dun and Bradstreet
Economic Life of Leased Property
Equity Position
Equity
Equity Participant
Estimated Useful Life
Executory Cost
Exposure
Fair Market Value Lease
Fair Market Value Purchase Option
Fair Market Value
FASB
FAZ-BEE
Finance Lease
Financial Accounting Standards Board 13
Financial Statements
Financing Statement
Fixed Purchase Option
Forbearance Agreement
Foreclosure
Forward Rate Agreements (FRAs)
Full Payout Lease
Full-service Lease
General Partnership
Guarantee
Guarantor
Guarantor
Half-year Convention
Hazard Insurance
Hell or High Water Clause
Holding Company
Incremental Borrowing Rate
Insurable Value
Interim Rent
Investment Grade Credit
IRS Form 1020
IRS Form 1040
Landlord Waiver
Late Charge
Lease
Lease Agreement
Lease Assignment
Lease Broker/Packager
Lease Covenants
Lease Factor
Lease Line
Lease Participation
Lease Purchase
Lease Rate
Lease Rate Factor
Lease Schedule
Lease Syndication
Lease Term
Lease Transaction
Lessee
Lessor
Letter of Credit
Leverage
Leveraged Lease
Limited Guarantee
Limited Liability Corporation (LLC)
Limited Liability Partnership (LLP)
Limited Partnership
Liquidity
MACRS Class Life
Master Lease
Mechanic's Lien
Midquarter Convention
Middle Market Credit
Municipal Lease
Negative Amortization
Net Lease
Non-participating Guarantor
Nonprofit Corporation
Non-tax Lease
Off Balance Sheet Financing
Operating Lease
Parent Company
Participating Guarantor
Partnership
Payment in Advance
Payment in Arrears
Personal Guaranty
Present Value
Progress Payment Lease
Property Tax
Proprietorship
Purchase Option
Recourse
Refinance
Refundable Security Deposit
Remarketing Fee
Remarketing
Renewal
Repossession
S Corporation
Sale and Leaseback
Sale/Use Tax
Sale-leaseback
Securitization
Security Deposit
Security Interest
Single Investor Lease
Skip-payment Lease
Soft Charge
Sole Proprietor
Standard Industrial Classification (S.I.C.)
Start-up Business
Step Down Lease
Step Payment Lease
Step Up Lease
Stipulated Loss Value
Subsidiary
Tax Lease
Tax Lien
Tax-exempt Entity
Tax-exempt User Lease
Tax Reform Act of 1986
Term
Term Lease
Terminal Rental Adjustment Clause(TRAC) Lease
Third-party Lessor
Trade-Up/Upgrade
Transactional Leases/Leases
Treasury Note
True Lease
U.C.C.
U.C.C. Filing Fee
U.C.C.-1
U.C.C.-3
Unlimited Guarantee
Upgrade
Useful Life
Validity Guarantee
Vendor
Vendor Leasing
Wire Transfer
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 coterminously with (on the same date as) the original transaction.
A tax depreciation system that establishes the minimum, midpoint, and maximum numbers of years, by asset category, over which an asset can be depreciated. The midpoint life has become synonymous with the term "ADR class life."
Payments made by the lessee at the inception of a leasing transaction.
A separate tax calculation in which a taxpayer must pay the higher of its regular tax or AMT liability. The coprorate AMT rate, although lower than the regular tax rate, is applied to a different, typically higher, taxable income than for regular taxes. The Tax Reform Act of 1986 substantially modified the AMT, which all taxpayers must calculate.
The process of allocating a portion of a leased asset's value to business expense over the periods benefited.
The effective rate taking into account compounding and other fees. The nominal rate of interest for a specified period (usually one year).
A payment made at the end of a lease term such as at the end of a month.
The updated ADR midpoint life as modified lbyt he 1986 Tax Reform Act. An asset class life represents the IRS designated economic life of an asset, and is used as the recovery period for alternative tax depreciation computations.
A share of a lease syndication. The assignee is bound by the terms of the original transaction, which, among other things, may require lessee approval of the assignee. (See Lease Syndication)
A system used to electronically transfer funds through a clearinghouse facility directly into the payee's bank account.
A large payment made at the end of a lease. Use of a balloon payment in a lease will have the effect of reducing the periodic payment during the lease term.
Similar to a purchase option, it is a provision in a lease giving the lessee the right to purchase the leased property for a price less than its anticipated fair market value. This term is most often used in connection with classifying a lease for accounting purposes.
An incremental change in interest rate equal to one hundredth of one full percent of interest. Example: a change from 10 percent to 11 percent is an increase of 100 basis points.
An intermediary between the lessee and lessor. The broker arranges a leasing transaction. The broker is usually paid some fee by the leasing company for its services.
The purchase of leased equipment by the lessee during the term of the lease.
A clause in lease documents giving the lessor the right, but not the obligation, to choose a maturity date in advance of the scheduled maturity.
Long-term assets which are not bought or sold in the normal course of business.
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 asset is carried on the lessee's balance sheet. The four criteria are:
Capped Fair Market Value
A provision in the lease allowing the lessee to purchase the leased property for its fair market value, but not exceeding a certain amount. The advantage of the cap is that the lessee will know the maximum payment required to purchase the leased property.
A leasing company that has been set up by a manufacturer or equipment dealer to finance the sale or lease of its own products to end-users or lessees.
A written verification by the lessee that they have received the property to be leased. Most leases begin after the date stated on the certificate of acceptance.
The lessee is committed only to the stated monthly payments, with no further financial obligation at the end point of the lease.
An individual/entity who is jointly and severally liable for the balance of a note. Both the borrower and co-borrower execute the face of the note.
An asset of the borrower and/or a third party which is pledged to MLC until a lease is repaid. In the event of default MLC has the legal right to seize the collateral and redeem or sell it to pay off the lease. Refer to Lending Standard. (See also Secured Facility, Supported Facility)
The obligation of the guarantor is activated only after MLC has pursued all remedies against the original debtor and the collateral, and a deficiency remains. (See Guarantee)
A broad form of liability insurance covering claims for bodily injury and property damage which combines under one policy coverage for all liability exposures (except those specially excluded) on a blanket basis and automatically covers new and unknown hazards that may develop. Comprehensive General Liability Insurance automatically includes contractual liability coverage for certain types of contracts.
A purchase agreement which presumes the customer to be the owner of the equipment immediately upon signature - provided all payments/conditions are met. (This contract allows immediate ownership for tax treatment and gives the seller a security interest until payments are completed.)
A provision in a contract that allows the creditor to apply to the court for judgment without notice to the debtor.
An artificial entity created by law. It consists of:
Two or more leases that are linked so that both will terminate at the same time.
The power to obtain money, materials or service by promising to pay for them at some definite future date.
A report from a credit service, such as TRW or Equifax, that summarizes an individual's credit history with retail establishments and financial institutions.
The process of gathering and verifying the references provided by a prospective lessee. (For example, obtaining credit bureau reports, Dun and Bradstreet reports, checking bank and trade references, etc.)
A guarantee by one corporation to pay the lease obligations of another corporation.
The ratio of net cash after operations to annual debt service. For real estate analysis, net cash after operations will mean net operating income.
A long-term lender in a leveraged lease transaction.
If a lessee does not comply with the terms of the lease, a default occurs. Generally, after a default, the lessor can exercise all of its rights under the lease to repossess the property and seek money damages. (See lease Agreement)
A receipt signed by lessee to certify that the equipment has been delivered, installed and is operating properly. D&A certification is usually necessary for the equipment vendor to receive payment and the terms of the lease to begin.
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.
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.
Total Direct Debt is all debt to MLC Group, Inc. that the lessee has signed as lessee and co-lessee. (See Exposure)
Same as a capital lease except this accounting classification only applies to a lessor. Why FASB choose two names for the same term, only they in their infinite wisdom know.
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.
A business unit within a corporation that is not legally separate from the corporation. Which means assets of the corporation are available to meet any credit obligations of the division.
A fee charged to the lessee for the processing of the lease and other insurable cost. (See U.C.C.)
An option at the end of the lease to buy the leased property for $1.
The difference in cash between the sale price of an asset and the lease amount.
A written order by one party to another party demanding the payment of a specified sum of money to a designated third person.
A commercial credit agency that compiles and provides, for a fee, a variety of information relating to the management, operating trends and credit worthiness of business organizations.
The estimated time the leased property can be used with normal repairs and maintenance.
The value established at the inception of a leasing transaction for the value of the leased asset at the conclusion of the lease term. (See Lease Transaction)
The interest or value which the owner has in an asset over and above the liens against it.
An entity that provides equity funding in a leveraged lease transaction and thereby becomes the owner and ultimate lessor of the leased equipment.
The period during which an asset is expected to be useful in trade or business.
Cost such as insurance, maintenance, taxes and third party guarantees that may be incurred when property is leased.
Total Exposure is the sum of Total Direct Lease Debt and Total Affiliated Debt of the Borrower. (See also Affiliated Debt, Direct Debt)
A lease which includes an option for the lessee to either renew the lease at a fair market value renewal or purchase the equipment for its fair market value at the end of the lease term. Though often referred to as tax leased, not all Fair Market Value leases qualify as tax leases.
Similar to a purchase option, this lease term gives the lessee the ability to purchase the leased property at its fair market value at the end of a lease.
The price for which property can be sold in an "arms length" transaction; that is, between informed, unrelated, and willing parties, each of which is acting rationally and in its own best interest.
This is the Financial Accounting Standards Board. This is the group that, on high, dictates the general accounting policy and theory which is to be followed by both internal accountants as well as external auditors.
Another name for FASB.
A lease that extends through the major portion of the equipment's useful life. The lessee assumes the risks and responsibilities of ownership over the duration of the lease and usually has the option to purchase the equipment for a nominal amount at the end of the lease term. Finance leases are generally considered to be capital leases from an accounting perspective and non-tax leases from a tax perspective.
Statement number 13 of the Financial Accounting Standards Board (FASB) which establishes standards for lessees' 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).
Accounting statements that provide specific information about a company's financial position. They include the Profit & Loss Statement, also known as the Income Statement, the Balance Sheet, and the Statement of Cash Flows. Financial statements can generally be audited by an outside CPA firm or be unaudited and, thus, prepared by the company.
This is a document specified under the Uniform Commercial Code, a law applicable in all states. This puts the world on notice that a security interest has been filed against the person on the form listed as the debtor.
An option given to the lessee 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 sample fixed purchase option is 10% of the original cost of the equipment.
A written agreement between MLC and a borrower in default of payment or lease covenants, prepared by bank counsel. The agreement identifies the default, stipulates the corrective actions to be taken by the borrower at specific dates, and provides for a suspension of collection activities by MLC as long as the borrower is in compliance with the terms of the Forbearance Agreement.
A legal procedure taken by a lessor, under the terms of the lease documents, for the purpose of having collateral sold at public auction and the proceeds applied to the payment of a defaulted debt.
A transaction where two counterparties agree to exchange payments on a specified future date based on the difference between a fixed rate, determined in advance, and a floating rate, determined on that future date. An FRA is usually a short-term instrument with a maturity of two years or less. (See Interest Rate Protection Products)
A lease in which the total of the lease payments pays back to the lessor the entire cost of the equipment including financing, overhead, and a reasonable rate of return, with little or no dependence on a residual value.
A lease that includes additional services such as maintenance, insurance, and property taxes that are paid for by the lessor, the cost of which is built into the lease payments.
A business operated by two or more general partners. Partnership assets, liabilities, and ownership are accounted for separately and distinctly from the personal assets and liabilities of individuals. However, the individual partners are liable for the partnership debts, and their personal assets are exposed to liability for the debts.
The obligation of an individual/entity to repay debt to MLC in the event of default by the original debtor. The guarantee may be classified as a collection, limited, unlimited, validity guarantee. (See also Collection Guarantee, Limited Guarantee, Unlimited Guarantee, Validity Guarantee)
A person or business promising to perform all of the lessee's obligations - including making payments - should the lessee fail to do so.
An individual/entity who commits to MLC to repay outstanding debts to MLC in event of default by the original debtor. Refer to Lending Standard. Guarantors will be either non-participating or participating. (See also Non-participating Guarantor, participating Guarantor)
A tax depreciation convention that assumes all equipment is purchased or sold at the midpoint of a taxpayer's tax year. The half-year convention allows an equipment owner to clain a half-year of depreciation deductions in the year of acquisition, as well as in the year of disposition, regardless of the actual date within the year that the equipment was placed in service or disposed of.
A contract whereby an insurer, for a premium, undertakes to compensate the insured for loss on a specific property due to certain hazards.
This is a provision in a lease agreement which indicates the lessee is required to pay the lease payment for the entire term of the lease. Problems encountered by the lessee with the leased property are not valid reasons for not making lease payments.
A shell organization that has no operations, only holds stock of operating subsidiaries.
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.
The value of the leased equipment that is to be insured by the lease.
A charge for the use of a piece of equipment from its in-service or delivery date, up to the date when the lease actually starts. Many leases begin at the start of a period such as the first of the month. If leased property is received and a certificate of acceptance is signed prior to that date, often there is an interim period between the acceptance and the start of the first lease rental. This period of time is called the interim term during which the interim rent is paid. The interim rent is generally calculated as a percent of the standard monthly rent prorated over the number of days in the month the lessee has use of the leased property.
Generally refers to a lessee of high credit standing. Technically, an investment grade credit is a company rated highly by one of many recognized credit agencies such as Standard & Poor's.
Tax return form for a corporation.
Tax return form for an individual.
An acknowledgment by the owner of property where leased equipment is located that the equipment belongs to the lessor and may be removed or inspected according to the terms of the lease and will not be considered to be a "fixture."
A contractual financial penalty that is imposed when the delinquency of a payment due exceeds the grace period.
A contract between a lessor who owns the asset and the lessee who uses the asset, where the lessor provides temporary possession and full use of the asset to the lessee, for a specified period of time, in exchange for rent payments.
A written agreement between borrower and lessor describing the amount, terms, and conditions of a particular credit facility. (See also Default, Lease Covenants, Waiver)
The lessor assigns the lease to another party giving the assignee the rights, powers, privileges and remedies specified in the lease.
An entity that provides one or more services in the lease transaction, but that does not retain the lease transaction for its own portfolio. Such services include finding the lessee, working with the equipment manufacturer, 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 also is referred to as a packager.
That portion of a lease agreement that defines certain requirements, e.g. financial ratios, dividend payouts, etc., which MLC has placed on the borrower. (See Lease Agreement)
The rate used to determine a monthly payment for a given equipment cost - usually expressed as a decimal fraction which is multiplied by the equipment cost (e.g. 0.0360 x $5000 = $180 per month).
A line of credit similar to a bank line of credit. It allows the lessee to easily add additional leased property under the same terms and conditions without negotiating additional agreements.
An undivided interest in a credit facility arranged by a lead investor. The rights of the participant are governed by the participation agreement between the lead bank and the participant. (Refer to Lending Standard)
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 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.
The periodic charge a lessee pays stated as a percentage of the original cost of the equipment.
This is a percentage which when multiplied by the cost provides a periodic rental. It is a helpful number when used by either a sales person or the lessee. In the event the cost of the leased property is either not exactly known or may change, having the lease rate factor allows a quick recalculation of a lease payment when that number becomes known.
A schedule to a Master Lease agreement describing the leased equipment, rentals and other terms applicable to the equipment.
A credit facility arranged by a group of co-managers who, by written agreement, will each distribute a certain portion of the lease. Each of the co-managers is a direct signer of the lease documents. (See also Assignment)
The fixed term of the lease.
A contract granting use of, or a loan for the purchase of, a specific piece of equipment or other fixed asset for a specific period of time in exchange for payment. Transactional leases/loans are supported by collateral unless the risk of the lessee warrants unsecured financing. (See also Capital Lease, Finance Lease, Residual Value, Terminal Rental Adjustment Clause (TRAC) Lease, Transactional Leases/Leases)
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.
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.
A letter from a bank to correspondent bank stating that the person named can draw on the issuing bank's credit for the amount stated, subject to the conditions stipulated.
An area of financial measurement that can be useful in determining the degree of protection a company's assets provide for its creditors.
A specific form of lease involving at least three parties: a lessor, lessee and funding source. The lessor borrows a significant portion of the equipment cost on a nonrecourse basis by assigning the future lease payment stream to the lender in return for up-front funds (the borrowing). The lessor puts up a minimal amount of its own equity funds (the difference between the equipment cost and the present value of the assigned lease payments) and generally is entitled to the full tax benefits of equipment ownership.
A limit has been placed on the amount of debt for which the guarantor is liable either by a fixed amount, an amount derived by formula (e.g. based on percentage of ownership), or identification of specific credit facilities. (See Guarantee)
A legal entity which allows limited liability for all owners, just like a corporation, and passes earnings on to the individual, just like a partnership. Owners of an LLC are referred to as "members" and an LLC is required to have at least two members at all times. Members may be individuals, non-resident aliens, trusts, corporation, other partnerships, or other LLC's.
A partnership formed by two or more persons. It functions much like a general partnership, however, a partner is not liable for debts or obligations of the partnership to the extend that the debts or obligations arise from a negligent or wrongful act or omission of another partner, or an employee or agent of the partnership.
Made up of one or more general partners and one or more limited partners and governed by the Uniform Limited Partnership Act (ULPA). The purpose of a limited partnership is to allow one or more individuals to provide capital without having to assume liability for debts. Limited partners are not liable for the debts of the partnership unless they guarantee the debts. They can only lose the amount of their investment in the partnership. General partners control the activities of the business and have full liability.
A firm's ability to meet its short term obligations on a timely basis and to convert assets to cash quickly and without loss in value when needed.
The specific tax cost recovery (depreciation) period for the class of assets as defined by Modified Accelerated Cost Recovery System (MACRS). Asset class lives (ADR midpoint lives) are used to determine an asset's MACRS class life and, hence, its recovery period.
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. In contrast to 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.
A lien on real property created in favor of persons supplying labor or materials for a building or structure, in the amount of the value of labor or materials supplied by them. Clear title to the property cannot be obtained until the claim for the labor, materials or professional services is settled.
A depreciation convention (replacing half-year convention for certain taxpayers in certain years) that assumes all equipment is placed in service halfway through the quarter in which it was actually placed in service. Allowable acquisition and disposition year depreciation deductions are prorated based upon the midquarter date of the quarter in which the asset was placed in service.
A lessee without an investment grade credit rating, but generally with sales greater than $50 million annually.
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.
A lease payment schedule in which the outstanding principal balance increases, rather than decreases, because the payments do not cover the full amount of interest due. The unpaid interest is added to the principal.
Any lease where all costs in connection with the use of the leased property are paid by the lessee and are not part of the periodic lease payments. For instance, maintenance, insurance and taxes are paid directly by the lessee. Capital leases are generally net leases.
A guarantor who is not actively involved with the daily operations of the borrower. (See Guarantor)
A public or quasipublic entity established for administration of public affairs or for charitable, religious, or benevolent purposes. It usually has a board of directors who manage the corporation and elect officers and a staff, answerable to the board, who run the day-to-day operations of the association. The corporation is the liable entity. States have different statutory requirements for charitable, religious, and benevolent corporate entities.
A type of lease in which the lessee is, or will become, the owner of the lease equipment and therefore, is entitled to all the risks and benefits (including tax benefits) of equipment ownership.
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. Full disclosure of such transactions is typically made in the auditor's notes to the financial statements. Periodic payments are recorded as expense items on the lessee's income statement.
A lease in which the lessor (leasing company) - in determining the lease rate - projects that the equipment will have a necessary market value at lease-end to provide an adequate rate of return. An operating lease is treated as a true lease (as opposed to a loan) for book accounting purposes. As defined in FASB 13, an operating lease must have all of the following (4) characteristics:
A corporation which owns the controlling voting stock (over 50%) in another corporation.
A guarantor who is active as a principal in the daily operations of the borrowing entity. (See Guarantor)
An association of two or more persons as co-owners of a business operated for profit. (In a General Partnership, partners share responsibility for any debts; in a Limited Partnership debt liability is limited to the amounts invested by the partners.) (See General Partnership, Joint Venture, Limited partnership, Limited Liability Partnership)
Periodic payments are due at the beginning of each period.
Periodic payments are due at the end of each period.
The guarantee of someone to be individually responsible for the obligations under the lease. Generally for Subchapter S closely held companies and small businesses, a leasing company may ask for a personal guaranty as a way to insure that the lease payments will be made.
Refers to today's value of money to be received in the future. (For example, how much is the right to receive $10,000 in five years worth to you today?)
MLC makes all milestone payments required by the software vendor until all software, equipment, customization, training, installation and conversion has been provided by the software vendor. This product is generally used with larger transactions that require milestone payments over a short time between three months and 18 months.
Taxes paid to local or state government for ownership of equipment.
A non-corporation business owned by one person.
A provision in the lease which gives the lessee the right to purchase the equipment at the end of the lease for an amount specified or its future fair market value.
An agreement between the lessor and the seller which allows the lessor to take recovery action against the seller should the lessee default.
A lease that is extended or revised due to a change in the original purpose and/or primary repayment source, is appropriately re-underwritten as a new transaction.
An amount paid by a lessee to provide extra protection to the lessor to insure that the lessee will pay its obligations under the lease.
A fee paid for selling or re-leasing leased property.
The process of selling or re-leasing leased property which has been returned to the lessor either at the end of the term or as a result of a default in lease.
A lease that is not repaid in full by a borrower, and the repayment plan is extended or revised. Renewals are not limited to leases with payments of the same amount; both decreases and increases of lease payment constitute a renewal.
The process of taking back equipment that is pledged as security to the lessor, due to non-payment or other contractual breech by the lessee.
A corporation in which five or fewer individuals own at least 50% of the stock, with the same legal right of a corporation except from a tax standpoint.
A transaction where property is sold to a party on the condition that it is immediately leased back to the seller. (Can be an attractive method for the owner of a capital asset to raise working capital.)
A state tax on leased equipment based on the amount of the monthly lease payment.
A transaction that involves the sale of equipment to a leasing company and a subsequent lease of the same equipment back to the original owner, who continues to use the equipment.
The packaging of lease receivables into an investment grade security as an alternative funding source.
Advanced down payment based on the cost of the equipment.
An interest in property that is acquired for purpose of securing payment of a lease obligation. A security interest allows the holder of the security interest to obtain the property in the event of default and gives the holder additional rights in the event of bankruptcy.
A lease in which the lessor is fully at-risk for all funds (both equity and pooled funds) used to purchase the leased equipment.
A lease that contains a payment stream requiring the lessee to make payments only during certain periods of the year.
Non-hardware or other non-liquid acquisition cost of lessor.
An individual operating as a business. The sole proprietor is personally liable for all the business's debts. Thus, creditors can look to the sole proprietor's personal assets to satisfy claims on the proprietorship.
The federal system of coding business according to industry type.
A business which has not produced one full year's financial statements and has not achieved at least one year of profitable operations.
Another variant of the "Step Rental Lease". A lease where the lease payments decrease over the term of the lease.
A lease in which the monthly payment either increases (step-up) or decreases (step-down) to a predetermined amount over the term of the lease.
Similar to, again, a "Step Rental Lease" and a "Step Down Lease" except the lease payment is increased during the term of the lease.
This is a term in a lease requiring the lessee to pay the value of the leased property in the event there has been some type of damage or destruction to the leased property.
A company owned by another corporation.
A generic term for a lease in which the lessor takes the risk of ownership (as determined by various IRS pronouncements) and, as the owner, is entitled to the benefits of ownership, including tax benefits.
A legal claim imposed by a Federal, State or County agency in lieu of non-payment of taxes.
Tax-exempt entities, for federal income tax purposes, generally include: any federal, state or local government (including their agencies and instrumentalities); any organization that is exempt from federal income taxes, such as non-profit charitable organizations; and most foreign persons or entities, unless a significant portion of their gross income is subject to federal income tax.
A type of tax lease available to tax-exempt or nonprofit entities, in which the lessor receives only limited tax benefits.
Recent tax law that effected a major overhaul of the U.S. tax system by lowering tax rates, modifying the Accelerated Cost Recovery System (now MACRS), repealing the Investment Tax Credit (ITC) and repealing the transitional finance lease.
Generally you can lease equipment over some term, e.g., 12, 24, 36, 48 or 60 months.
A lease which is repaid in installments according to a predetermined schedule.
A guaranty clause that allows a company to guarantee the residual portion of their tax lease of transportation equipment. (See Lease Transaction)
An independent leasing company, or lessor, that writes leases involving three parties: 1) the unrelated manufacturer; 2) the independent lessor; and 3) the lessee.
Exchanging equipment and entering into a new lease obligation.
A contract granting use of, or a lease for the purchase of, a specific piece of equipment or other fixed asset for a specific period of time in exchange for payment. (See Lease Transaction)
An obligation of the U.S. Government with a maturity of one to five years. (The yield on this note serves as a basis for funding cost.)
A transaction recognized in law and by tax authorities as providing the lessor with the benefits and risks of ownership - with the basic qualification that the lessee may not build an equity position in the asset during the term of the lease.
The Uniform Commercial Code - a uniform set of laws adopted in all states, except Louisiana, to govern commercial transactions.
A fee charged for processing and filing a U.C.C.-1 or U.C.C.-3.
The form used under the Uniform Commercial Code to record security interest and collateral of commercial equipment with a state department of commerce or a county clerk.
The form used to formally terminate the record of security interest in a piece of commercial equipment.
The full and complete commitment by a third party to repay all outstanding debts to MLC in the event of default by the original debtor without first causing MLC to proceed against the original debtor. (See Guarantee)
To trade in leased equipment for a newer, more advanced model during the lease term.
The period of time during which an asset will have economic value and be usable. (Also called "economic life".)
A form of limited guarantee designed to protect MLC from fraud. The guarantor is obligated to provide MLC with true and accurate information. The detection of fraud would cause the guaranty to revert to an unlimited guarantee. (See Guarantee)
The seller of equipment to the lessor for lease to a third party (lessee).
A working relationship between a leasing company and a vendor to provide leasing to the vendor's customers. In some sense, the leasing company is working as an extension of the vendor providing credit checking, billing and collecting documentation, and customer service. The leasing company, generally, is accepting the credit risk.
The transfer of funds from one party to another through the Federal Reserve Banking system.
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