American Bank Leasing - Glossary of Terms

We offer the following definitions for the convenience of our Web-site visitors.

- A -

the periodic rental payments which are collected by the lessor at lease inception and applied to the rentals due under the lease. Advance Rentals are applied to the payments that you owe, Security Deposits are not.

the process of gradually extinguishing a capital expenditure in periodic payments over a predetermined length of time.

a signature by a person authorized by a company to obligate the company on a long-term lease. An authorized signer will be substantiated by a leasing company through a Certificate Authorizing Resolution and Incumbency that specifies who can sign and his/her title.

- B -

a provision of the lease or an agreement which is separate from the lease that allows the lessee to purchase the leased asset for a predetermined price which is lower then the fair market value of the asset. This option is normally exercised at the end of the lease and provided the lessee has complied with their responsibilities under the lease.

a person or entity that acts as a financial intermediary between the end-user, lessee, and a financial institution, lessor.

- C -

a type of lease which is treated as a purchase on the lessee's books. Generally capital leases can be identified by one of the following characteristics:

The lease term is equal to or greater than 75% of the estimated useful life of the leased asset.
Title to the asset is automatically transferred to the lessee at the end of the term.
Title to the asset can be obtained by the lessee for a bargain option at the end of the lease term.
The present value of the required lease payments are equal to or the estimated fair market value of the asset at lease inception.

- D -

a document executed by the lessee indicating that the asset has been delivered, is as appears on the lease and operates to the lessee's satisfaction and manufacturer's specifications. This is generally the final document executed by the lessee and signals the lessor that they may remit payment to the vendor.

- E -

the time period over which one can expect to obtain the benefits of ownership and/or use of a piece of equipment.

An Equipment Finance Agreement has all the characteristics of a $1.00 Buyout Lease. It is used for titled vehicles or other equipment where American Bank Leasing wishes to protect itself from the liability associated with ownership. The Borrower owns the asset and the Lender takes a security interest in the asset.

a schedule signed by the lessee which becomes part of the lease agreement. This schedule will identify all assets being leased and will generally include model and serial numbers. It should be identical to the vendor's invoices and will become the defining document in the event of an asset dispute.

- F -

the market value at the end of the lease which is determined after taking into consideration recent sales of similar equipment, obsolescence factors, deinstallation, resale expenses, etc.

a provision of the lease or an agreement which is separate from the lease that allows the lessee to purchase the leased asset for it's true market value. This value is generally determined by an independent third party knowledgeable in such matters. This option is normally exercised at the end of the lease and provided the lessee has complied with their responsibilities under the lease.

a type of lease which requires the lessee to remit payment of the rentals which total the cost of the asset plus the lessor's required profit. It is noncancellable, requires the lessee to pay all taxes and other assessments, requires the lessee to provide insurance, and to maintain the asset according to the manufacturer's guidelines. It is anticipated that the lessee will acquire title to the asset at the conclusion of the lease term.

terminology typically used to refer to a capital lease or non-tax lease. Also called a one-dollar buyout lease because title to the equipment is passed to the lessee at lease end for $1.00 or some other bargain amount.

a lease in which the total periodic payments exceed the cost of the asset being leased.

- H -

an aspect of the lease agreement which requires the lessee to honor all conditions of the lease regardless of any of any other fact, including equipment performance.

- L -

a document executed by the owner of the asset, the lessor, and the user of the asset, the lessee, which details the terms of the lessee's usage and payment.

the contractual agreement between the lessor and the lessee that conveys the use of an asset for a specified period of time at a predetermined payment.

- M -

a type of lease in which the parties detail the terms and conditions under which leased asset will be used, but do not address the periodic payment requirements. These requirements are addressed in a separate document which becomes an addendum to the lease. A Master Lease may have several addenda each one dealing with a separate asset acquisition.

- N -

a lease in which all costs in connection with the use of the equipment, such as maintenance, insurance and property taxes, are paid separately by the lessee and are not included in the lease rental payment made to the lessor. The majority of small ticket leases are net leases.

- O -

any form of financing that, for financial reporting purposes, is not required to be reported on a company's balance sheet.

a type of lease which contains most of the characteristics of a conditional sales contract and which contains a guarantee from the lessee that the lessor will realize a minimum amount from the sale of the leased asset at the end of the lease term.

an accounting term for a lease that meets certain criteria established by the FASB (Financial Accounting Standards Board). Such a lease is not required to be shown on the balance sheet of the lessee.

a type of lease which is not a CAPITAL LEASE. This lease, from a financial reporting perspective, has the characteristics of a true rental agreement and meets certain criteria established by the FASB (Financial Accounting Standards Board). OPERATING LEASES are not required to be reflected on the financial statements of the lessee.

- P -

the tax assessed by counties and some states on the value of real property and equipment. Under most leases, the lessee is billed separately by the lessor for property tax assessed on leased equipment.

a document or provision of a lease by which the lessee is granted the right to purchase the leased asset at the end of the lease term.

an option in the lease agreement that allows the lessee to purchase the lease equipment at the end of the lease term for either a fixed amount or at the future fair market value of the leased equipment.

an option that commits the Lessee to purchase the leased asset for a predetermined amount at the conclusion of the lease term. As with any other option to purchase, if the lessee defaults in their obligations as defined by the lease, the lessor may terminate the lessee's right to purchase.

- R -

an option in the lease agreement that allows the lessee to extend the lease term for an additional period of time beyond the expiration of the initial lease term, in exchange for lease renewal payments.

the value, either actual or expected, of leased equipment at the end, or termination, of the lease.

- S -

a transaction that involves the sale of equipment to a lessee and a subsequent lease of the same equipment back to the original owner, who continues to use the equipment.

a type of lease in which an asset that is owned by the lessee is sold to the lessor and then leased back to the lessee. This type of lease is generally used when the lessee desires additional cash for their business. When a Sale-Leaseback is used it is likely that the lessee will have to pay income tax on the difference between the sale price of the equipment and the depreciated value of that equipment on the lessee's books. The lessee will also have to pay a sales or use tax.

a document incorporated by reference into the lease agreement that describes in detail the equipment being leased.

funds which are held by the lessor as additional collateral to insure performance. Security Deposits may be forfeited by the lessee in the event of a default.

- T -

a generic term for a lease in which the lessor takes on the risks of ownership (as determined by various IRS pronouncements) and as owner, is entitled to the benefits of ownership such as tax depreciation. Also referred to as a True Lease.

the agreed upon number of months the lease will run or the number of periodic payments.

refers to the cost of equipment being leased. The leasing industry is roughly segmented into the small ticket ($0-100K), middle ticket ($100k-$1MM) and large ticket (>$1MM).

a type of lease which is tax oriented and used exclusively for titled motor vehicles. TRAC derives it's name from a clause in the contract which is the terminal rental adjustment clause. This clause adjusts the residual value of the vehicle based upon usage.

another term for a Tax Lease where, for IRS purposes, the lessor qualifies for the tax benefits of ownership and the lessee is allowed to claim the entire amount of the lease rental as a tax deduction.

- U -

a document filed with the county (and sometimes the Secretary of State) to provide public notice of a security interest in personal property.

a system developed by nearly all states to protect secured parties security interests in personal property.

a document which is filed with the Secretary of State and in some cases other public agencies which describes for the public record the nature of the relationship between the lessee and the lessor. This filing also describes the asset being leased and is generally regarded as the defining record in the event of a dispute as to the rightful owner of specific assets.

Our Terms