Application Form - Most lessors use a lease application form to list the information required to evaluate a prospective Lessee's credit condition and history.

Application-Only Credit Review - When the credit approval for an equipment lease is done without requiring the lessee to provide tax returns or financial statements.

Bargain Purchase Option - An option to purchase the equipment at the end of the lease for less than its market value. Most common bargain purchase options give the lessee the right to buy the leases equipment for $1.00.

Broker - A company that arranges transactions between lessees and lessors of an asset.

Capital Lease - From a financial reporting perspective, a lease that essentially transfers ownership from the lessee to the lessor, and also meets certain criteria established by the Financial Accounting Standards Board Statement No. 13 (FASB 13). Such a lease is required to be shown as an asset and a related obligation on the balance sheet.

Certificate of Delivery and Acceptance - A document that is signed by the lessee to acknowledge that the equipment to be leased has been delivered and is in acceptable condition. After the D&A is signed, the equipment is paid for.

Closed-end Lease - A lease that does not contain a purchase or renewal option that the lessee can exercise at the end of the lease. This type of lease requires the lessee to return the equipment to the lessor.

Conditional Sales Contract - A sale agreement for equipment in which possession of property is transferred, but ownership passes only after the sale meets certain conditions, such as full payment of the purchase price.

Depreciation - A reasonable allowance for exhaustion, wear and tear, and obsolescence of equipment used in a trade or business. As a periodic item of expense, it allows the owner of the equipment to recover the cost of the equipment over its useful life.

Economic Life (Useful Life) - The period of time during which the leased equipment will have economic value and provide utility.

FASB 13 - Statement of Financial Accounting Standards No. 13 is a statement that was issued by the Financial Accounting Standards Board. This statement details when a lease is accounted for as a lease, and when it is accounted for as a purchase of equipment.

Fair Market Value - The value of a piece of equipment if the equipment were to be sold in the open market. A purchase option may be written to allow the purchase of the equipment at the fair market value.

Finance Lease - A lease that is accounted for as a purchase of equipment instead of as a rental of equipment. This will usually be a lease that covers most of the useful life of the equipment or a lease that has a bargain purchase option at the end.

Full Payout Lease - A lease in which the lessor recovers, through the lease payments, all costs incurred in the lease plus an acceptable rate of return, without any reliance upon the leased equipment's future residual value.

GAAP - Generally Accepted Accounting Principles.

Lease - A transaction in which use and possession but not title to equipment is transferred.

Lease Agreement - The contractual agreement between the lessor and the lessee that sets forth all the terms and conditions of the equipment lease.

Lease Line - A pre-approved amount of debt or money that a lessor will allow to a lessee.

Lease Payment - The periodic payment made during the lease term. This payment will usually be paid each month, but may be paid quarterly.

Lease Term - The number of months that an equipment lease agreement is to last.

Lessee - The user of the equipment being leased.

Lessor - The party to a lease agreement who has legal or tax title to the equipment, grants the lessee the right to use the equipment for the lease term, and is entitled to the rental payments.

Off Balance Sheet Financing - A form of financing, such as an operating lease, which is not required to be reported on a lessee's balance sheet.

Operating Lease - Any lease that is not a capital lease. These is usually when the lease term is shorter than the Economic Life of the leased equipment.

Operating Lease - A lease that has the characteristics of a rental agreement and also meets certain criteria established by the FASB. This kind of lease is not required to be shown on the balance sheet of the lessee.

Pre-Funding - Many vendors require that they be paid at least 50% of the invoice amount before proving the equipment to the lessee. This is called pre-funding.

Purchase Option - An option in the lease agreement that allows the lessee to purchase the leased equipment at the end of the lease for either a fixed amount of money (which might be one dollar or ten percent of the original equipment cost) or at fair market value of the leased equipment at the time that the lease is completed.

Put Option - The requirement to purchase equipment at a particular time and at a predetermined price. In a lease transaction, this is the price that the lessee agrees to pay to the lessor at the end of the lease term for the purchase of the equipment.

Residual - The value of the leased equipment at the end of the lease term. In a fair market value lease, this will usually be estimated at the time the lease begins.

Residual Value - The value of leased equipment at the end of the lease.

Sale Leaseback - An arrangement whereby leased equipment is purchased by a lessor from the company that already owns it and has been using it. The lessor then becomes the owner and leases it to the original owner, who continues to use the equipment.

Section 38 Property - Any asset on which depreciation may be taken, defined by IRS. Most types of leased equipment are considered Section 38 property.

Step Payments - Lease payments which change during the lease term, usually from lower at the beginning of the lease to higher during the later period of the lease.

Sublease - A transaction in which leased property is re-leased by the original lessee to a third party, and the lease agreement between the two original parties remains in effect.

Tax Lease - A true lease for Federal tax purposes which allows the lessor to claim the tax benefits on the leased equipment.

Trac Lease - A tax-oriented lease of motor vehicles or trailers that contains an end of lease rental adjustment clause and otherwise complies with the requirements of the tax laws.

True Lease - A type of transaction that qualifies as a lease under the Internal Revenue Service Code. It allows the lessor to claim ownership and the lessee to claim rental payments as tax deductions.

Uniform Commercial Code - A standardized program and method of administering, legalizing and recording lien instruments.

Vendor - The business that sells the equipment that is leased through the equipment lease agreement.

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