• Leasing Terminology
    The following is a list of commonly used leasing terms with descriptions based on standard equipment leases in the U.S. leasing industry.
  • Lessor
    The party that owns the equipment, technically the owner of the asset. ie..lending institution or bank.
  • Lessee
    The party that will use the equipment, until the term is completed.
  • Lease
    A legal contract where the owner (lessor) gives another party (lessee) the right to the use of equipment for a term of time in exchange for scheduled payments.
  • FMV – Fair Market Value
    The assessed value of equipment based on actual market demand.
  • Purchase Option
    A residual that allows the lessee to purchase the equipment at the end of the lease. The residual price may be stated at a specific amount or at a fair market value.
  • True Lease or (FMV Lease)
    A lease, is where the lessee has the option to purchase the equipment at fair market value, renew the lease (payments based on fair market value), or return the equipment to the lessor. An FMV lease provides tax advantages because the lessee can fully claim the lease payments as a business expense, thus lowering the businesses taxable income. The lessor, as the owner of the equipment receives the benefit of claiming depreciation on the equipment. An FMV lease, offers the benefit to be passed on to the lessee in the form of lower payments.
  • TRAC Lease
    A TRAC lease is designed for commercial vehicles and trailers that generate revenue for a business. At the end of the term, the vehicle may be purchased for a pre-specified amount (usually 10-20%) or sold to a third party. If it is sold to a third party for more than the pre-specified amount, the lessee keeps the profit. If it is sold for less than the pre-specified amount, the lessee must still pay the specified amount to the lessor. This “adjustment clause” allows the lessee to fully claim the lease payment as a business expense thus lowering the businesses taxable income.
  • Certificate of Acceptance or also known as (Delivery and Acceptance)
    A document whereby the lessee acknowledges that the equipment has been delivered, installed correctly and is acceptable for use. Also, approving that the equipment has been manufactured and or built to specifications.
  • Sale-Leaseback
    Is a lease transaction that allows a business to turn an equipment purchase into an equipment lease. The lessor buys the equipment and becomes the equipment owner. Doing a transaction of this nature can produce cash flow for the business, but allows the business to continue to use the equipment.
  • Residual Value
    The current value of an asset at the end of a lease term.
  • Master Lease Agreement
    A contract that allows a lessee to acquire capital asset for the business.
  • Equipment Schedule “Exhibit A”
    A document that describes in detail the equipment being leased.
  • Broker
    A company or person who arranges lease transactions between a lessee and a lessor, on behalf of the lending institution.