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1 Buyout

Also called abandonment lease , Capital lease, lease to purchase where the lessee at the end of lease term owns the equipment for $1 or 10% purchase agreement. Use this option to cover 100% of the purchase price, taxes, shipping and have your equipment pay for itself whether the equipment is new or used.

Abatement Lease

A tax-exempt and multi-year lease. A lease by which the Lessee may pledge to make lease payments for the whole lease term unless the leased asset is not accessible for use. In that case, abatement happens. (This is the opposite of a tax-exempt lease with a non-appropriations clause.)

Advance Payments

Lease payments (one or more) that must be paid to the Lessor at the start of the lease term. Usually, lease structures necessitate one payment to be made beforehand.

Alternative Minimum Tax (AMT)

The Alternative Minimum Tax is calculated for every taxpayer. The Tax Reform Act of 1986 considerably altered the AMT. The AMT is a penalty tax because a taxpayer must pay the greater of its AMT liability of regular tax. When compared to regular taxes, the corporate AMT rate is applied to a different, usually higher, taxable income. This explains why the AMT liability might be higher.


The unit of personal property attained by the Lessee. It is acquired through payments over a period of time according to the lease.

Asset Management

Providing for the correct and well-timed tracking, disposition, and maintenance of one’s lease assets.

Assign/Assigning/Assigned Lease

A leasing company uses this very common funding method. The company exchanges, or allots, its rights to future lease payments in a lease to a funding source. In return, the company receives upfront cash. The cash signifies the loan amount. It equals the current value of future lease payments. An assigned lease is a lease that has been assigned to a funding source. Identical to Discount/Discounting/Discounted Lease.


When one is in danger of possible loss.

Bank-Affiliated Leasing Company

A subsidiary of a bank holding company or bank that is operating as a Lessor. The subsidiary normally acts both as Lessor, lease broker, and/or underwriter.

Bank Qualified

Under requirements of the Internal Revenue Code (IRC), profit-making banks may deduct 80% of their interest costs on funds used to “carry” or attain tax-exempt obligations (leases and bonds) of governments that borrow less than $10,000,000 in a calendar year. If that condition is not met, the bank cannot deduct the interest cost.

Bargain Purchase Option

A usually optional lease provision that permits the Lessee to buy the leased property at the end of the lease term for a lower price than the projected fair market value of the property, so that use of the option looks, at the beginning of the lease, to be reasonably secure.

Bundled Lease

A lease that offers a lot of added services paid for by the Lessor such as property taxes, maintenance, and insurance. The cost is included into the lease payments. Same as Full-Service Lease.

Capital Budgeting

A purchase made for the purpose of securing ownership of property, equipment and/or plant. Usually, there is an extensive capital budgeting review and approval process before this type of purchase happens.

Capital Expenditure Funds

Funds that were appropriated through the capital budgeting process to buy property, equipment and/or plant.

Capital Lease

A lease that has the same features of a purchase agreement. It also meets certain criteria created by the FASB. This lease must be displayed on the Lessee’s balance sheet as an asset and related obligation (capitalized.)

Captive Leasing Subsidiary

An equipment dealer or manufacturer sets up a finance organization to lease its products to end-users, to increase the manufacturer’s sales. The organization is completely owned by the dealer or manufacturer.

Captive Lessor

A dealer or manufacturer establishes a leasing company to finance the company’s products.

Certificate of Delivery and Acceptance

The Lessee signs a document to recognize that the equipment that will be leased is acceptable and was delivered. A lot of lease agreements say that the lease term starts when the document is signed.

Closed-Ended Lease

The Lessee must return the equipment to the Lessor at the conclusion of the initial lease term because the lease agreement does not have a purchase or renewal possibility.

Conditional Sales Contract

The Lessee is regarded as the owner of the asset for federal income tax reasons. (This means they are authorized to the tax benefits of ownership, such as depreciation.) However, they cannot become the legal owner of the asset until all terms and conditions of the contract are satisfied.

Consolidated Parent Company

The parent company (dealer or manufacturer in a lease) joined with all of its subsidiaries. The parent company may be combined with its subsidiaries for financial and/or tax reasons.


When the Lessee does not pay expenses (or other sums) on time under the lease, or the Lessee does not recognize a representation or warranty in the lease, or the Lessee violates an agreement in the lease. Also, the applicable periods to cure the nonpayment come to an end. A non-appropriation or reduction is not usually a default, even when the solutions are similar for each incident.


When a firm regains the cost of a bought asset through periodic deductions or offsets to income, over a period of time. Used in tax and financial reporting settings. It is a tax benefit because the firm can have a lower tax liability due to depreciation deductions producing a decline in taxable income.

Discount/Discounting/Discounted Lease

See Assign/Assigning/Assigned Lease.

Discount Rate

An interest rate that takes a series of upcoming cash flows to their current value so the cash values may be stated in current dollars. The discount rate takes away the time value nature of money from upcoming cash flows.


When the Lessor sells or salvages leased equipment after they regain the equipment.

Early Termination

When the Lessee takes leased equipment back to the Lessor before the lease term ends, as allowed by the original lease or succeeding agreement. Sometimes, the Lessee may be punished.

End-of-Term Options

The lessee has flexibility in the handling of the leased equipment at the end of the lease term because of options stated in the lease agreement. Common options are renewing the lease, buying the equipment, and returning the equipment to the Lessor.

Equal Payments

Lease payments that stay the same amount no matter what period. Also known as level payments.

Equipment Schedule

A document usually referred to in the lease agreement, which describes the equipment being leased thoroughly. The document may state the commencement date, the lease term, the location of the equipment, and the repayment schedule.

Equipment Specifications

A detailed description of a piece of equipment that will be obtained. May include (but not limited to) configuration, make, model, and capacity requirements.

Equipment Upgrade

In this option, the Lessee may add equipment to a present piece of leased equipment to advance its efficiency or expand its capacity.


The Lessor invests these funds into a lease, as compared with any borrowings or debt.

Equity Funding

The equity investor uses the equity funds in a lease transaction to partly pay for the leased equipment. The balance is paid through a type of debt.

Equity Investor/Equity Participant

A party that provides equity funding in a lease transaction. This entity becomes the owner of the leased equipment and eventual Lessor.

Fair Market Value

The value of a piece of equipment if it were to be sold in a transaction determined at a distance between a willing buyer and a willing seller, for equal property under comparable terms and conditions.

Finance Lease

An expression that is used in reference to a capital lease or a non-tax lease.

Financial Accounting Standards Board (FASB)

The regulatory body that institutes financial reporting standards.

Full-Payout Lease

A lease where the Lessor regains, through the lease payments, all costs experienced in the lease in addition to a satisfactory rate of return, without dependence upon a future residential value.

Full-Service Lease

See Bundled Lease.

Funding Attributes

The method in which the Lessor pays for, or funds, a piece of leased equipment.

Funding Source

A party that pays any part of the funds that cover the cost of the leased equipment. Funds may come from an equity-funding source (e.g. the ultimate Lessor in a lease transaction) or a debt-funding source (e.g. a bank or other lending establishment.)

Guaranteed Residual Value

The Lessee or an isolated third party (i.e. Insurance company, equipment manufacturer) promises the Lessor that the leased equipment will be worth a certain set amount at the end of the lease term. The guarantor will reimburse the Lessor for any defect if the leased equipment is reclaimed at a lower amount than the guaranteed residual value.


The start of the lease term.

Independent Leasing Company/Independent Lessor

A leasing company independent of any manufacturer, bank, or credit corporation. This means they can buy equipment from any manufacturer. After the leasing company buys the equipment, they lease it to the end-user (Lessee.) The Independent Lessor can be an investor using its own monies or a lease broker using monies acquired from other investors. Also known as Third Party Lessor.


The entity that offers the funds to pay for the leased asset.

IRS Pronouncements

Case law, Revenue Procedures, Revenue Rulings, and other assorted documents that have the Internal Revue Service’s understanding and judgment on federal income tax law in the Internal Revenue Code, put forward by Congress.


An agreement in which one entity, the owner of the equipment or Lessor, allows another entity, the Lessee, to utilize the equipment for a certain period of time, trading their use for a series of payments.

Lease Acquisition

The method of a leasing company buying or obtaining a lease from a lease originator, such as another leasing company or a lease broker.

Lease Administration

A significant part of the lease procedure that happens throughout the period of the lease. The Lessor, or subcontractor, contributes lease tracking, collections, billing, UCC filings, ect.

Lease Agreement

The contract between Lessee and Lessor that establishes all the terms and conditions of the lease.

Lease Broker

A party that offers one or more services in the lease transaction, but does not keep the lease transaction for its portfolio. The party could provide services such as securing debt financing for the Lessor to use in buying the equipment, working with the equipment manager, finding the Lessee, locating the ultimate Lessor, or equity participant, in the lease transaction. Also known as a Packager.

Lease Documents

Written documents that prove the lease transaction. Includes (but not limited to) the purchase order assignment, equipment schedule(s), and the lease agreement.

Lease Line of Credit

A procedure that permits the Lessee to make withdrawals at fixed intervals from a line of credit created to fund lease attainments.

Lease Origination

The method of finding (through a sales force), cultivating, and achieving new lease transactions. Stages in this process can include (but are not limited to) pricing possible transactions, searching for new lease business, documentation, and credit review.

Lease Payments

An agreement when an amount of separate tax-exempt leases come together for reasons of a single public offering. The governments are usually related (i.e. school districts) and come together via a shared interest association. A lease pool is not the same as a master lease because a master lease puts together leasing needs of numerous agencies or departments in one issuer/lessee, such as a county or state.

Lease Renewal Option

The Lessee can prolong the lease term for an extra period of time after the initial lease term ends, in trade for lease renewal payments.

Lease Term

The set term of the lease that cannot be cancelled. The Lessee must pay rental costs. The lease term should co-occur with or be shorter than the useful life of the leased asset.

Lease Revenue Bond

When a bond’s repayment source is a lease to which project profits have been guaranteed for making routine payments, even though the source of lease payments can also involve General Fund revenues. Also known as lease-backed revenue bond.

Lease Versus Buy

A comparison of the costs acquired in gaining the use of an asset for a certain period of time through buying or leasing. Costs are usually compared based on their current value, after tax.


A financial process people take part in to obtain the use of an asset for a certain amount of time, in exchange for regularly paying rent.

Leasing Subsidiary

See Captive Leasing Subsidiary.


The ultimate user of the leased equipment, who submits regular payments to the Lessor in exchange for using the leased equipment over a certain duration of time.

Lessee-Guaranteed Residual

The sum of the future residual value promised by the Lessee.

Lessor/Leasing Company

The owner who provides equipment that is leased to a Lessee, or ultimate user, in a lease transaction.

Level Payments

See Equal Payments.


Indebted. The sum of debt in a transaction or lease company. When a firm uses more borrowed funds, corresponding to equity infusions, to pay for its functions, the firm becomes more leveraged.

Leveraged Lease

A lease that includes three or more parties: Lessee, Lessor, and a funding source. The Lessor borrows a substantial amount of the equipment charge, usually on a non-recourse base, by allotting the future lease payment stream to the lender in exchange for up-front monies. The Lessor puts forward a nominal quantity of its equity funds (the variance between the equipment price and the current value of the allotted lease expenses) and typically has all of the tax benefits of possessing equipment.

Maintenance Contract

An arrangement where the Lessee contracts with another entity to fix and/or uphold the leased property throughout the lease term, in return for a sequence of payments.

Master Lease

A lease line of credit that permits the Lessee to acquire more leased equipment under originally decided lease terms and conditions, without creating a new lease contract with the Lessor.

Master Lease Agreement

The contractual arrangement concerning the Lessee and Lessor in a master lease transaction. It usually expresses essential lease terms and conditions, how long the agreement is effective, the maximum amount of money that may be used throughout the time of the agreement, and explain how and when the lease rate(s) will be set.


The conclusion of the lease term, as long as all of the requirements in the lease agreement have been met.

Money-Over-Money Lease

A provisional sales contract disguised as a lease. The Lessee does own or will own the leased equipment at the conclusion of the lease term, so they are authorized to tax benefits of ownership like depreciation.

Municipal Lease

Usually, a provisional sales contract that seems like a lease. It is only accessible for municipalities and the interest earnings are typically tax-exempt to the Lessor. Compatible with State, City, County, School District, & Government Agency Requirements. Use this lease option for essential-use equipment, at attractive rates, with ownership at the end of the lease.

Net Lease

A lease wherein all costs related to the use of the equipment, like insurance, property taxes, and maintenance are distinctly paid for by the Lessee. The costs are not encompassed in the lease rental paid to the Lessor.


A kind of borrowing where the borrower (Lessor) is not-at risk concerning the borrowed funds. The lender expects reimbursement from the Lessee and/or the salvage value of the leased equipment. The lender’s credit choice is established by the how worthy the Lessee is of credit and the projected salvage value of the leased equipment.

Non-tax Lease

The Lessee is or will become the owner of the leased equipment. This means the Lessee is permitted to all the benefits and risks (counting tax benefits) of owning the equipment. Also known as a Money-Over-Money Lease.

Off Balance Sheet Financing

Any type of financing (e.g. an operating lease) which, for financial reporting reasons, does not need to be stated on a firm’s balance sheet.

Operating Budget

A budget that states the all goods and services that the firm is allowed by management to distribute throughout the operating phase.

Operating Lease

In a financial reporting context, a lease that has the features of a usage agreement, and also matches specific criteria the FASB created. This lease is not mandatory on the Lessee’s balance sheet. Infrequently, operating lease denotes specific leases in which the Lessor has taken a substantial remaining position in the lease pricing and has to recover the equipment for a specific value when the least term ends to make its return rate.


Exposing and completing new lease transactions. A firm that takes place in origination actions is called an Originator.


See Lease Broker.


Before the end of the lease term, the Lessee buys the leased asset from the Lessor.

Payments in Advance

A payment stream in which every lease payment is owed at the start of every period throughout the lease.

Payments in Arrears

A payment stream in which every lease payment is owed at the conclusion of every period throughout the lease.

Pooled Funds

Lessors use this technique. Many methods of borrowing are grouped to use in funding leases and are not explicitly attached to buying one certain piece of leased equipment.


The whole collection of leases that a Lessor invests in.

Present Value

The reduced value of a payment of stream of payments that will be accepted in the future, taking into account a certain discount or interest rate. It signifies a sequence of upcoming cash flows conveyed in current dollars.


Organizing a lease transaction to reach the periodic rental amount a Lessee pays. A lessor has to take into account pricing variables like Lessor targeted yield, residual value, lease term, security deposits, and tax benefits.


The Lessor designates to the Lessee the estimated terms and conditions of a suggested lease financing. This usually includes the lease term, lease payment amount, deposits, fees, ect. It is not obligatory for Lessee or Lessor because it usually depends on Lessor credit approval.

Purchase Option

An option in the lease agreement that lets the Lessee buy the leased equipment at the conclusion of the lease term, it is specified at either a set amount or the leased equipment’s future fair market value.

Purchase Order Assignment

A document that moves every right in a equipment purchase order (buying the equipment at a specific price with specific terms) from the Lessee to the Lessor. This allows the Lessor to buy the equipment from the manufacturer and then lease it to the Lessee.

Rate of Return

The amount an investment makes, usually specified yearly as a percentage of investment.


A kind of borrowing. The Lessor/borrower is completely at-risk to the lender for paying the requirement. The Lessor/borrower must pay the lender regardless of whether the Lessee is achieving its duty under the lease agreement.

Refundable Security Deposit

The Lessee pays this amount to the Lessor as a security so that the Lessee will complete all the responsibilities in the lease agreement. It is give back to the Lessee when all responsibilities are completed. It is usually refunded at the conclusion of the lease term, but if both parties agree, it can be refunded at any time throughout the lease.


Leasing or putting the leased equipment up for sale when the lease term concludes. The Lessor may remarket the equipment or contract with another entity, like the manufacturer, so the Lessor can pay a charge to remarket the equipment.

Remarketing Fee

A fee a party must pay if they lease or sell a piece of leased equipment when the lease term concludes.

Renewal Option

See Lease Renewal Option

Request for Proposal (RFP)

A document that summarizes the Lessee’s specific and general lease financing needs. The document is directed to different Lessors and asks that they present a lease proposal. This might entail length of term, equipment specifications, and end-of-term options.


See Residual Value.

Residual Position

How much residual worth is built into the lease price. Also known as the residual value amount the Lessor is at-risk for, and must obtain at the end of the lease to make its pre-targeted return rate.

Residual Value

The actual or expected value of leased equipment at the conclusion of the lease.

Residual Value Guarantee

A guarantee the Lessor receives from another party that says the residual value will be worth a specific predetermined amount when the lease term finishes.

Retained Transaction

When one saves a lease investment or transaction for one’s own portfolio, and does not sell it to another investor or Lessor.

Salvage Value

The projected or fulfilled value from selling a piece of equipment at a certain point in time.


See Equipment Schedule.

Security Deposits

See Refundable Security Deposit.

Single-Investor Lease

In this lease, the Lessor is completely at-risk for both pooled and equity funds used to buy the leased equipment. Pooled funds entail borrowings from different sources, usually on a recourse base.

Skip-Payment Lease

A lease that has a payment stream that asks for payments solely during specific periods of the year.

Small Ticket Market

A part of the leasing marketplace that focuses on lower priced equipment. The cut-off between small and middle markets depends on each firm, but it ranges from $25,000-$100,000.


In a lease, the difference between the funding cost and rate of return to the Lessor. It should be enough to take care of all costs and give the investor a return.

Step-Down Lease

In this lease, the lease payments are reduced throughout the lease term.

Step-Payment Lease

A lease that has a payment stream where payments either increase or decrease throughout the lease term.

Step-Up Lease

In this lease, lease payments increase throughout the lease term.


Deliberating all of the elements of a possible lease transaction: Lessor yield, lease term, security deposits, end-of-term option(s), repayment structure, ect. to settle a periodic payment the Lessee will pay.


Terminal Rental Adjustment Clause. The Lessee basically promises a residual value for vehicle leases.

TRAC Lease

A lease that has a TRAC, which is for the vehicle leasing industry because it is only used when leasing cars, trucks, or trailers.


An adaptable lease option. The Lessor substitutes current leased equipment with newer or different equipment.


Not liable to taxation.

Tax-Exempt User Lease

A kind of tax lease obtainable only to not-for-profit or tax-exempt entities. The Lessor gets restricted tax benefits.

Tax Lease

The Lessor accepts the risks of ownership (decided by different IRS statements) and is permitted to ownership benefits, counting tax benefits.


The lease term ends and the lease is completed.

Third-Party Lessor

An independent leasing company or Lessor. The three parties are: the independent Lessor, the unrelated manufacturer, and the Lessee.

Two-Party Lessor

A captive Lessor. The two parties are: the Lessee/end-user of the equipment and the combined parent and captive leasing subsidiary.

UCC Financing Statement

Under the Uniform Commercial Code (UCC), a document filed with the Secretary of State (and the county at times) to offer public notice of a security interest in personal property.

Unguaranteed Residual Value

The part of residual value the Lessor is “at-risk” for. The Lessor accepts the risk that the equipment mayor might not be worth the projected value when the lease term ends.

Up-front Fees

The Lessee pays the Lessor these fees at the start of the lease.


See Equipment Upgrade.

Usage Agreement

An agreement or contract that expresses the intent of usage (versus purchase) by one entity of another entity’s equipment.

VBB (Vendor Buy Back)

Also called Purchase upon termination, Vendor owns the equipment at the end of the lessee lease term. For when you the vendor wants to own your customers equipment at the end of the customers lease term. Use this option to build profits, Provides vendor with quality used equipment at a fraction of wholesale cost.


In a lease investment, the Lessor’s rate of return.



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