Terminology & FAQ's

The Equipment Leasing Experts - Our 35th Year!




The Language of Equipment Leasing - A Glossary

Acceptance ("Delivery & Acceptance").  The lessee’s acknowledgement that the equipment to be leased as has been received and is in satisfactory condition.   For the  lessee's protection, funds will not be released to your vendor until First Capital has received your written "delivery and acceptance" form and been able to reconfirm same by telephone.

Advance Lease Payments.  Most leases call for a specific number of lease payments in advance.  1-2 payments is a typical requirement.  The total number of  payments during the lease are reduced by the advance payments.  (Bank financing typically require much larger "down payments," typically 10-25% of the purchase price to close the loan along with "origination" and other fees.

"Application Only" Program.  A streamlined credit application and review procedure that only requires the submission of a single page application with basic information about the business' principals, bank and trade references.  This type of  program does not require financial statements, tax returns, business plans or other more detailed disclosures.

Commercial Lease  First Capital's program for larger leases--$20,000 to $5,000,000.  Our most aggressive pricing.  Businesses must provide 1-3 years audited or review level financial statements or tax returns and must be under current ownership at least 2 and usually 3  years. Also see First Capital's "Commercial Lease" page for a more complete discussion of this topic.

Deferred Payment Lease  The initial lease payments are deferred 60, 90 or 120 days to accommodate cash flow/capital budgeting requirements.  Also see First Capita's "Cash Flow Friendly" page for a more detailed discussion of lease options. 

End of Lease Options.  What happens to the equipment after all payments have been made.  Typical options are the $1 Buyout, FMV, PUT, equipment return,  continued leasing and more.  See individual option definitions elsewhere in this section as well on First Capital's "Lease Types" page which contains more complete discussions.

Fair Market Value (FMV) Lease.   Provides greater flexibility and lower monthly payments than the Finance Lease format.  Key benefits include a number pre-set end-of-lease options:

bulletReturn the equipment with no further obligation, or
bulletPurchase the equipment for its fair market value, or
bulletRe-lease the equipment for its fair market value, or
bulletContinue leasing on a month-to-month basis

The FMV lease may also qualify as a tax deductible operating expenses.  Also see First Capital's "Lease Types"  page  for a  more complete discussion of this topic.

Finance Lease ($1 Buyout, Capital Lease or Bargain Purchase Lease) These 4 terms describe leases that combine lower, fixed monthly payments with the guaranteed-in-advance right to purchase the equipment at the conclusion of the lease term at a pre-determined price.  These leases generally do not qualify as deductible operating expense and must be amortized and depreciated.  There are, however, some significant other tax benefits under I.R.S. section 179, that may be available to your business.  See First Capital's "Taxes & Leasing" page for a more complete discussion .

Insurance & Why It is Required,   Because leased equipment is technically owned by the lessor until the satisfactory conclusion of the lease term, (proof of) all risk/casualty insurance will be required showing the lessor as a "named insured."  

Lessee.  The entity that is leasing the equipment from its owner; the lessor.  

Lessor.  The owner of  the equipment to whom lease payments are made.

Master Lease.  One lease (and one credit approval) for several pieces of equipment purchased at different times from one or more vendors.  Once you have been approved First Capital only requires brief addendums and equipment schedules for each new batch of equipment.

Off-Balance Sheet Financing.   Financing that does not add debt to a company's balance sheet.  This can be extremely important to companies with bank and/or other lender-imposed key operating ratio requirements.  Under a true lease for example, the lessee does not show the leased equipment as an asset (the lessee does not own the equipment, nor does the lease structure contemplate ownership), nor therefore, is the lessee required report the corresponding long term liability.   See the "True Lease" definition in this section or the "Lease Types page for additional related discussions.  (congress is the process of reviewing the whole "off balance shet" approach...stay tuned!)

Operating Lease.  Ownership is retained by the lessor during and after the lease.  Any lease that is not a capital or finance lease (lease cannot contain bargain purchase option e.g. $1/buyout).  The lease term must be less than 75% of the estimated economic life of the equipment.  See FMV lease (above).   Also see First Capital's "Lease Types" page  for a  more complete discussion of this topic.

Progress Payments (Vendor Pre-Funding)  A special kind of lease for vendors who require up to 100% of the selling price prior to delivery.  (Most leases are designed to fund your equipment vendors immediately after you confirm that the equipment that you ordered has been received in satisfactory order.)  Some vendors, however, require that specially ordered, configured or manufactured-to-order equipment be paid for in stages ranging from small up front, order-confirmation deposits, to multiple "progress payments" as the order gets closer to shipping to full-prepayments.  First Capital can accommodate almost any equipment vendor's pre-payment requirement.  Also see First Capital's  "Cash Flow Friendly" page for a more detailed discussion of lease options. 

Purchase Option.  See "End of Lease Options"

PUT Option (Purchase Upon Termination).  A specialized option, that can be offered in conjunction with an FMV lease that requires a purchase of the equipment at the conclusion of the lease at a fixed-in-advance percentage of the original purchase price (e.g. 10%).  

QuickLease™   First Capital's "application only" lease program for amounts to  $100,000.  No financials, no business plans. 30 Minute pre-approvals.  (For businesses under current ownership at least 2 years and with good credit)  Also see First Capital's "QuickLease™" page for a  more complete discussion of this topic.  

Rate Factor.  Once the equipment cost has been determined, the actual monthly lease payment (before tax and one-time fees) can be computed by multiplying "the factor" (usually expressed as a 5-digit, decimal number) by the equipment's cost.

Recourse (or "vendor recourse").  Generally applies to the funding source (lessor's) right to require the manufacture or distributor take back and/or take responsibility for re-marketing equipment that is not paid for as a result of default by their customer(s), the lessee.   Note:  First Capital does not require recourse" agreements with its vendors.  

Residual Value  The remaining (market) value of the equipment at the end of the lease term

Sale Lease Back.  A technique for re-capturing cash previously expended on equipment by selling that equipment to First Capital who in turn leases that same equipment back to the company over a period of  12 to 60 (or more) months.  First Capital will readily "buy back" most any equipment that has been purchased new, within the previous 90 days based on the manufacturer/dealer's original invoice(s).  Older or used equipment may be subject to an independent valuation appraisal prior to funding.

Seasonally Adjusted Lease Payments  Lease payments that are "adjusted" to accommodate a businesses cash flow seasonality.  Payments are set lower for the businesses "slower" or "off-season" months and set slightly higher during months of the business' traditionally stronger cash flow.  e.g. payments might be lower initially to allow a company  start generating.  Also see First Capital's "Cash Flow Friendly" page for a more detailed discussion of lease options.

Security Deposit.  An amount  paid  at the beginning of the lease that is held by the lessor until the satisfactory payment of all amounts due under the lease terms, at which time the security deposit amount is returned to the lessee.

Skip Payment Leases.  The lessee selects a series of months in which no-payments will be due.  Also see First Capital's "Cash Flow Friendly" page for a more detailed discussion of lease options.

Step Payment Lease.  Lease payments are stepped up (or down) to accommodate the lessee's anticipated cash flow pattern as the company begins to see its  return from the acquired equipment.  .  e.g. payments might be lower initially to allow a company  start generating.  Also see First Capita's "Cash Flow Friendly" page for a more detailed discussion of lease options.

TRAC Lease.  (Terminal Rental Adjustment Clause) Many of the benefits of a true lease, but designed specifically for over-the-road vehicles like trucks, tractors & trailers.  Special provisions of the tax code allow for pre-determined end-of-lease valuations (unlike a true or FMV lease).  Generally the most aggressive pricing for vehicles.  Lessee bears some risk if the equipment does not bring the anticipated resale value at lease end.  May include FMV or continued rental options. Also see First Capital's "Lease Types" page  for a  more complete discussion of this topic

True Lease (Tax or Operating Lease).  A true lease, by definition, does not call for the full payout of  the equipment cost during the lease term, nor does a true lease contemplate a transfer of title following the conclusion of the lease.  The lessee is only "paying for the equipment  during a portion of that equipment's useful life.  Hence the lease payments are often treated as 100% tax deductible operating expenses.  The lease generally does not appear on ,the balance sheet as a business asset or as a business liability.  This type  of lease also offers the lowest payments for a given term.  A true lease may (but does not have to) include an FMV (fair market value) option which allows the lessee to purchase (take full ownership of) the equipment for its legitimate fair market value at the time the lease terminates.  Also see First Capital's "Lease Types" page  for a  more complete discussion of this topic

Working Capital.  In (basic) accounting/financial terms working capital is defined as current assets-current liabilities.  It is one measure of a business' "ready cash."  Leasing conserves working capital by allowing a business to better match (time) its expenses for the acquisition of  equipment to the revenue generated by that that equipment generates.  (Why pay  in advance?)  See working capital lease program.

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