Glossary

$1.00 Buyout
Lease where the company (the borrower) makes payments on a piece of equipment, and at the end of the lease term, “buys” the equipment for $1.  For $1 buyout, the payments and term reflect – almost dollar for dollar – a finance loan of similar length.  In essence, a $1 buyout lease is just like a loan, save for the technical classification of ownership.  While lease payments are being made, the lessee (the borrower) doesn’t technically own the equipment – but if treated as a bargain purchase option lease – it does show up as an asset on the balance sheet.

100% Prefund
Vendor is paid by Lessee before equipment is shipped.  

ACCELERATED DEPRECIATION
The ability to record depreciation expense for tax purposes at a faster rate than a traditional straight-line approach generally required under accounting rules.

ACCOUNTS PAYABLE
Amounts owed by a business to its creditors.

ACCOUNTS RECEIVABLE
Amounts owed a business by its debtors.  The term is usually used in reference to amounts owed by customers.

ACCRUAL BASIS
A method of accounting that shows expenses as incurred and income as earned even though such expenses and income have yet to be actually paid or received.

ACH – Automated Clearing House
Electronic funds transfer network that clears and settles recurring payments between financial institutions, as well as debits and credits generated through business to business commerce and trade transactions.

ACID TEST
The ratio between current assets (less inventory) and current liabilities as shown on a balance sheet.  This test provides some indication of a party’s liquidity.  (Also known as the “quick ratio.”.)

ADDITIONAL INSURED
A party other than a party in whose name insurance is issued who is also protected against losses covered by such policy.

ADVANCE RENTALS
One or more lease payments required to be paid to the lessor at the beginning of the lease term.  A lease, commonly paid “in advance”, requires the first payment up front.  The lessor can negotiate any number of additional rentals to be paid in advance with the first month’s rent.

ADVANCED PAYMENTS
Lease payments made up-front, normally first and last payment.

AFFIDAVIT
A statement by a person sworn to before a notary public.

ALTERNATIVE MINIMUM TAX (AMT)
A flat tax to ensure that corporate and high-income taxpayers pay at least some tax, regardless of their deductions.

AMORTIZATION
With respect to a loan, the process of reducing a debt obligation through periodic payments, which payments usually include both an interest and principal component.  In accounting terms, the spreading of the cost of an asset over its useful lie for financial statement and/or tax purposes.

ANNUAL PERCENTAGE RATE (APR)
An expression of the effective interest rate that a borrower will pay on a loan, taking into account one-time fees and standardizing the way the rate is expressed.  The APR is the total cost of credit to the consumer, expressed as an annual percentage of the amount of credit granted.

APPRAISAL
An evaluation of the value of a specific item of property, usually as conducted by a person with expertise with respect to such property.

APPRAISED VALUE
A value obtained through an appraisal of property.

ARBITRATION
An out-of-court resolution of a dispute between two or more parties by a third party of parties selected pursuant to contract, statute, or other means.

ASSIGN
To transfer or exchange future rights.  In leasing, the right to receive future lease payments is usually transferred to a funding source, in return for up-front cash.  The up-front cash represents the loan proceeds from the funding source and is equal to the present value of the future lease payments discounted at the leasing company’s cost of borrowing.

ATTORNEY-IN-FACT
One who has been given a power of attorney by another.

BALANCE SHEET
A list of one’s assets and liabilities and their difference (net worth) on a precise date.

BALLOON PAYMENT
A payment on a loan that is unusually large in comparison to the other payments on the loan.  A balloon payment is usually the final payment on a loan.

BANKRUPTCY
The financial condition of insolvency, particularly when such insolvency has resulted in the filing of a petition for reorganization or liquidation under Title 11 of the United States Code.

BARGAIN PURCHASE OPTION
A lease provision allowing the lessee, at its option, to purchase the leased property at the end of the lease term for a price that is sufficiently lower than the expected fair market value of the property, such that the exercise of the option appears, at the beginning of the lease, to be reasonable assured.

BASIS POINTS
Units of 1% with each unit being 0.01% (1/100%) (e.g. “50 basis points” is one-half of one percent).

BILL OF SALE
A written document, which evidences the transfer of ownership of property.

BOOK VALUE
Value according to accounting records, which may or may not be real market value.

BROKER
The middleman who brings together lessors, or funding sources, lessees and vendors for the purpose of executing a transaction and who receives a commission for such service.  The fee for service is known as the broker’s fee.

BUNDLED LEASE
A lease that includes many additional services such as maintenance, insurance and property taxes that are paid for or performed by the lessor, the cost is built into the lease payments.  Also referred to as “full service lease”.

CAPITAL EQUIPMENT
An asset with an acquisition cost that exceeds a set amount. To be a capital asset, the item must also have a lifespan of more than a year.

CAPITAL LEASE From a financial reporting perspective, a lease that has the characteristics of a purchase agreement 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.

CAPITALIZED COST
The total acquisition cost of equipment as purchased by a lessor for lease, including purchase price, delivery, installation, commissions, licenses, fees, etc.

CAPTIVE LESSOR
A leasing company that has been set up by a manufacturer or dealer of equipment to finance the sale or lease of its own products to end-users or lessees.

CASH FLOW
Income inflows and expense outflows over a specified period of time.

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 acceptable.  Many lease agreements state that the actual lease term commences once the D&A has been signed.

CERTIFICATE OF INSURANCE
A statement from an insurance company or its agent that a certain policy has been written.  The certificate usually summarizes the policy’s coverage.

CERTIFIED CHECK
A check issued by a bank itself in its own name on behalf of one of its depositors.

CHATTEL
Personal property

CLAIM AND DELIVERY
Judicial procedures used to demand and receive the return of one’s property; replevin.

CO-LESSEE
An additional lessee to a lease.  The lease will usually provide that the co-lessee is jointly and severally liable on the lease with the lessee.

COLLATERAL
Security, usually property (real, personal, or intangible) pledged to secure performance of an agreement.

COMMENCEMENT
Typically defined as the start date of a lease.

COMMENCEMENT FEES
Non-refundable fees that the lessee sometimes pays with equipment deliver is in the future.  Commitment fees compensate the lessor for holding funds available.

COMPLAINT
The plaintiff’s initial, formal version of its lawsuit against a defendant.

COMPOUND INTEREST
Interest computed on the sum of principal and accrued interest as of the date of computation.

CONDITIONAL SALES CONTRACT
An agreement for the purchase of an asset in which the lessee is treated as the owner of the asset for federal income tax purposes.  This entitles the lessee to the tax benefits of ownership, such as depreciation, but the lessee does not become the free and clear owner of the asset until all terms and conditions of the agreement have been satisfied.

CONSIDERATION
The inducement to a contract; the value given for a contract.  Consideration may be money, property, a promise, forbearance or any other thing, act, benefit, or value.

CONTRACT
The total legal obligation, which results from an agreement.

CORPORATION
A legal entity created by or under the authority of state law which has the capacity to act on its own behalf and which has a continuity of existence without regard to transfers of interest in it.

COUNTERCLAIM
A claim asserted by a defendant against a plaintiff.

COUNTERSIGN
To sign in addition to another in order to authenticate the signature of the other.  An agreement on which the signatures of both the president and secretary of a corporation have been countersigned.

COVENANT
A promise to do something or that certain facts are true.

CREDIT LINE
The total amount of credit a financial institution makes available to one of its debtors.

CROSS CORP GUARANTY
Ownership in more than one business.  A guarantee provided by one company to another company that is often related, such as a subsidiary or joint venture, and a reciprocal guarantee provided in the opposite direction.  

CROSS COLLATERAL AGREEMENT
A legal written contract of the terms and conditions involved during a cross collateralization process.  Collateral are the assets which a borrower provides a lender as evidence of security while taking a loan.  When the collateral for one debt is used as collateral for another debt, this process is referred as cross collateralization.  In simple terms, cross collateralization is a process of securing a debt obligation by using a group of assets or mortgages.

CURRENT ASSETS
Assets, which are readily converted into cash.

CURRENT LIABILITIES
Liabilities, which must be satisfied within one year.

CURRENT RATIO
The ratio of current assets to current liabilities.

DEBT
An amount owed another.

DEBTOR
A person who is in debt or under financial obligation to another.

DEFENDANT
A party who must defend a lawsuit.

DELIVER AND ACCEPTANCE (D&A) FORM
A document that evidences the delivery and acceptance of equipment by the customer.
If deal is not prefunding, it is needed to fund.  If there is prefunding, it will be an item to get before final funding but not needed prior to prefunding.

DEPRECIATION
A means for a firm to recover the cost of a purchased asset, over time, through periodic deductions or offsets in income.  Depreciation is used in both a financial reporting and tax context and is considered a tax benefit because the depreciation deductions cause a reduction in taxable income, thereby lowering a firm’s tax lability.

DIRECT FINANCEING LEASE
A lessor capital lease (per FASB13) that does not give rise to manufacturers or dealer’s profit (or loss) to the lessor.

DISCLAIMER OF OWNERSHIP
Customer pays the vendor a down payment. 

DISCOUNT RATE
A certain interest rate that is used to bring a series of future cash flows to their present value in order to state them in a current, or today’s dollars.

DISCOUNTED LEASE
A lease in which the payment stream is assigned by the lessor to a funding source in return for the immediate payment of the present value of the stream of payments assigned.

DOUBLE STREAM
.5% is collected upfront on the cost of equipment and that amount will be your new cost of equipment.  Sales tax is then collected off the new payment with tax and figured on stream.  AEF must collect and remit sales tax.

DRY LEASE
A net lease, traditionally for aircraft or marine vessels, which specifically requires the lessee to procure all personnel, fuel and provisions necessary to operate the craft.

EARLY TERMINATION
If a lessee is given an option to terminate a lease early, the lessor may build a termination fee into the agreement (to recover their costs).  This fee could include additional profit-should the lessee exercise this option.

EFA – Equipment Finance Agreement
AEF is the Secured Party and the customer is the Debtor

EFFECTIVE LEASE RATE
The termination of a lease before the end of its original term.

END- OF-TERM OPTIONS
Options stated in the lease agreement that give the lessee flexibility in its treatment of the leased equipment at the end of the lease term. Common options include purchasing the equipment, renewing the lease or returning the equipment to the lessor.  Options are sometimes given as an amendment to the lease documents and are not made part of the actual lease document.  They may be a fixed dollar amount, a percentage of equipment cost or fair market value.

EQUAL CREDIT OPPORTUNITY ACT (ECOA)
A law that applies to any person who, in the course of business, regularly participates in credit decisions and includes banks, finance companies and credit unions.

EXEMPTION CRETIFICATE
A document that certifies that a party to a transaction subject to sales tax is exempted from sales tax liability under certain specified circumstances.  The most common exemption is for equipment being acquired for lease or re-sale.

EXHIBIT A
Step payments on a Lease or EFA. Used for multiple locations.

EXPOSURE
Have existing leases with AEF.

FAIR CREDIT REPORTING ACT
A federal statute administered by the Federal Trade Commission (FTC) that regulates the collection, dissemination and use of consumer information, including credit information.

FAIR MARKET VALUE (FMV)
The value of a piece of equipment if the equipment were to be sold in a transaction determined at arm’s length, between buyer and a willing seller, for equivalent property and under similar terms and conditions.  Simply, the actual market value of the leased asset.

FIDUCIARY
A trustee.  A fiduciary is a person who holds a legal or ethical relationship of trust with one or more other parties (person or group of persons). Typically, a fiduciary prudently takes care of money for another person.

FINANCE LEASE
As most frequently used, a net lease, which has as its purpose the financing of the use of property for a major portion of the property’s useful life.  The term is typically used in reference to leases written by third party lessors.  The term is often confusingly used to refer to a conditional sale in the form of a lease transaction.

FINANCIAL STATEMENT
A notice of security interest filed under the Uniform Commercial Code (UCC).  Under Revised Article 9 of the UCC, it is filed with the Secretary of State in the state in which the lessee is incorporated.

FPO
Fixed Purchase Option
Provision in an equipment-lease agreement that gives the lessee the choice of purchasing the leased equipment from the lessor on a specified date (called option date) at a fixed price that is usually a percentage of the original cost.

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 property’s future residual value.

FUNDING SOURCE
A party who provides financing for a lease transaction.  Brokers in referring to lessors frequently use the term but lessors can also use it in referring to those parties who provide lessors with the funds lessors use to purchase equipment.

GAAP
Generally Accepted Accounting Principles
The accounting principles used in the preparation of financial statements as set forth in FASB.

GARNISHMENT
The legal proceeding whereby a creditor directs a party who has property (e.g. money) of the creditor’s debtor to transfer the property to the creditor.  

GOOD FAITH
Honest intention and action.

GUARANTOR
One who is obligated on a guaranty agreement.

GUARANTY
An agreement to answer for the debt or obligation of another if that other party fails to pay or perform.

GUARANTEE OF TITLE
It is agreed by the undersigned to release to the lien free Certificate of Title for the mentioned vehicle upon receipt of payment in the amount of dollars in reference to claim number.

INCUMBENCY CERTIFICATE
An official document that identifies and authorizes certain individuals to execute binding agreements on behalf of the corporation. The certificate acts as confirmation that the individual does in fact have that authorization to make binding agreements, and may be requested by the other party before entering such agreements.

Used with Cross Corporate Guaranty(s) & Master Lease contracts.  If signer is a 100% owner, he may sign both places and a witness needs to sign bottom of form. (NO DRIVER LICENSES FOR WITHNESS’S)
Titles for LLC or Corporations can also be CEO, CFO, Director, etc.  May also be President’s, Sec for LLC’s.

INDEMNIFY
To reimburse another for a loss.

INDEMNITY
An agreement to reimburse another for a loss

INDEPENDENT LESSOR
A type of leasing company that is independent of a vendor or manufacturer and, as such, purchases equipment from various unrelated manufacturers or dealers.  The equipment is then leased to the end user or lessee.  This type may also be called a third-party lessor.

INSURANCE CERTIFICATES
Proof of insurance is required on all titled transactions and all lease transactions of $250k or above.

INTERIM FUNDING
Vendor requires a deposit before they order or deliver the equipment.

INTERIM PAYMENTS
Payments charged to the lessee covering the interim period between the equipment acceptance date and lease commencement date.  The lessor will normally purchase the leased equipment from a vendor on the equipment acceptance date, and commence the lease on a later date, such as the first day of the month following the equipment acceptance date.

INTERIM RENT
A charge for use of equipment from delivery date until the base term of the lease commences.  The use of interim rent allows the lessor to have a common commencement date for its Leases.

INTERNAL RATE OF RETURN (IRR)
The unique discount rate that equates to the present value of cash flows (i.e., lease payments, purchase option) to the present value of the cash outflows (equipment or investment cost).  The IRR is the most common method used to compute yields.

INVESTMENT TAX CREDIT (ITC)
Sections 38 and 46-50. The Tax Reform Act of 1986 effectively repealed the ITC for newly acquired properly.

JOINT AND SEVERAL LIABILITY
A liability involving two or more parties in which each party is liable individually and independently as well as together.

JOINT LIABILITY
A liability involving two or more parties in which each party is liable individually and independently as well as together.

LANDLORD WAIVER
A document in which a landlord acknowledges that certain property on its tenant’s premises is owned by a third party (the lessor) and is leased to the tenant and in which a landlord agrees to recognize and not interfere with the lessor’s rights respecting the lessor’s property.

LEASE
A transaction in which use and possession but not title to tangible personally property is transferred for a consideration.

LEASE AGREEMENT
The contractual agreement between the lessor and the lessee that sets forth all the terms and conditions of the lease.

LEASE BROKER
An entity that provides one or more services in the lease transaction, but does not retain the lease transaction for its own portfolio.  Such services include finding the lessee, working with the equipment manufacturer or dealer, securing debt financing for the lessor to use in purchasing the equipment and locating the ultimate lessor or equity participant in the lease transaction.  The lease broker may also be referred to as a packager or syndicator.

LEASE INTENDED AS SECURITY
A transaction in which the form is a lease, but the substance is a conditional sales contract or a loan with security agreement on the property.

LEASE PAYMENT
The periodic payment made during the lease term.  Such payments are frequently a level amount paid periodically over the lease term, but it is not uncommon for a lease to have a skip payment, or to be otherwise contouring to fit, for example, the seasonal fluctuations of a lessee’s income.  (Generally, leasing may provide for more creativity in this regard than a loan.)

LEASE ORIGINATION
The process of uncovering, developing and consummating lease transactions.  Steps in the process could include, but are not limited to prospecting for new lease business, pricing potential transactions performing credit reviews and completing the necessary documentation.

LEASE TERM
Length of a lease, usually stated in monthly increments but occasionally stated in quarterly or yearly increments.

LEASE UNDERWRITING
The process in which a lease broker arranges a lease transaction for the account of third parties, prospective lessor and lessee.

LESSEE
The User of the equipment that is the subject of a Lease Agreement.

LESSOR
The owner of the equipment that is the subject of a Lease Agreement.

LIABILITY
An obligation that one is legally bound to satisfy.

LIEN
An encumbrance upon property.

LIMITED LIABILITY COMPANY (“LLC”)
A type of business entity that came into existence during the 1990’s, which consists of one or more members which may be individuals, partnerships, limited partnerships, trusts, estates, associations, corporations, other limited liability companies or other business entities.  The members of a limited liability company are afforded limited liability similar to shareholders of a corporation and have pass-through taxes comparable to a partnership.

LIMITED LIABILITY PARTNERSHIP (“LLP”)
An entity similar to an LLC classified as a partnership, according to the IRS, if it has no more than two of the following corporate characteristics:  centralization of management, continuity of life, free transferability of interests and limited liability.

LINE OF CREDIT
A pre-approved amount of borrowing allowed a debtor by a creditor.

LOSS PAYEE
A party entitled to receive proceeds from an insurance settlement arising in connection with a covered casualty or loss.

MASTER LEASE
A lease document, not a lease classification, that allows a lessee to obtain additional leased equipment under the same basic lease terms and conditions originally agreed to, without having to renegotiate and execute a new lease contract with the lessor.

MIDDLE MARKET
A nebulous term, which denotes the size of the transactions in which a market is generally involved. A common designation of the middle market is for transactions between $100,000 and $2,000,000.

MONEY-OVER-MONEY LEASE
A non-tax lease or conditional sales contract in the guise of a lease, in which the title is intended to pass to the lessee at the end of the lease term.

MORTGAGEE’S WAIVER
A document in which a mortgagee acknowledges that certain property on its mortgagor’s premises is owned by a third party (the lessor) and is leased to the mortgagor and in which the mortgagee agrees to recognize and not interfere with the lessor’s rights respecting its property.

MUNICIPAL LEASE
A lease to municipality or other state or local government or governmental agency, which may be, but is typically not a true lease, but from which the interest earnings to the lessor are tax exempt.

NADA - National Automobile Dealers Association
Used for title leases.  Option to purchase.

NET LEASE
A lease in which all costs in connection with the use of property, such as maintenance, insurance and property taxes, are paid for separately by the lessee and are not included in the rental payment to the lessor.

NET PRESENT VALUE
The total discounted value of all cash inflows and outflows from a project or investment.

NONRECOURSE
A type of borrowing in which the borrower (a lessor in the process of funding a lease transaction) is not at-risk for the borrowed funds.  The lender expects repayment from the lessee and/or the value of the leased equipment; hence, the lender’s credit decision will be based upon the credit worthiness of the lessee, as well as the expected value of the leased equipment.  Lessors may be nonrecourse from a credit review, but seldom does this relinquish documentation-oriented risks.

NOVATION
The substitution of a new party for one party to an agreement with the release of the prior party from further obligation.

ON STREAM
Pay Tax on rental stream and buyout.  
Tax on payments verses AEF up fronting the cost for tax.  (See Metrix)

OPERATING LEASE
From an accounting perspective, any lease that has the characteristics of a usage agreement and also fails to meet any of the criteria set forth under FASB 13 for a capital lease (See Service Lease.)

OPTION TO PURCHASE
A right to purchase property at a future date; a call.

PARTNERSHIP
A business enterprise owned by two or more parties who are jointly and severally liable for all business liabilities and who share management authority.

PAYMENTS IN ADVANCE
A payment stream in which the lease payment is due at the beginning of each period during the lease.

PAYMENTS IN ARREARS
A payment stream in which each lease payment is due at the end of each period during the lease.

PAYOFF
The amount that will retire a debt or other obligation at any given point in time.  The term has commonly been used in reference to both loans and non-cancelable leases.

PERSONAL PROPERTY TAX
A tax on the ownership of personal property; a type of ad valorem tax imposed by certain states and their political subdivisions.

PLAINTIFF
A party who brings a lawsuit.

PLEDGE
A bailment of property to a creditor to secure payment of debt or performance of some obligation.

POINTS
One percent or one percentage going (1.00%).  A point also represents 100 basis points.

POA – Power of Attorney
The authority to act for another person in specified or all legal or financial matters.

PRESENT VALUE
The discounted value of a payment or stream of payments to be received in the future, taking into consideration a specific interest or discount rate.  Present value represents a series of future cash flows expressed in today’s dollars.

PROGRESS PAYMENTS
Payments required by an equipment vendor or manufacturer prior to delivery of equipment to be leased.  The progress payments lessen the outlay necessary for the vendor to purchase the equipment or the manufacturer to build the equipment and it adds an economic penalty if an order is cancelled mid-stream.

PROPRIETORSHIP
A business enterprise owned by one person who is directly liable for all business liabilities.

PURCHASE MONEY SECURITY INTEREST
A security interest in property to secure the payment of the purchase price of the property.

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

PURCHASE ORDER
An offer for the purchase of an item of property.  The purchase order will normally specify the terms and conditions under which the buyer is willing to make the purchase; when accepted by the seller it becomes the purchase contract.

PUT AGREEMENT
(“Purchase Upon Termination”) An agreement between the lessor and lessee wherein the lessee agrees to buy and the lessor agrees to sell the leased equipment for a predetermined amount.

QUICK RATIO
The ratio between current assets (less inventory) and current liabilities as shown on a balance sheet; acid test. This test provides an indication of a party’s liquidity.

RECOURSE
A type of borrowing in which the borrower (a lessor funding a lease) is fully at risk to the lender for repayment of the obligation.  The recourse borrower (lessor) required to make payments to the lender whether or not the lessee fulfills its obligations under the lease agreement.  Recourse borrowing arrangements may, or may not, take the underlying lease payment stream into account. It is not unusual where repayment is based on equal principal plus interest.

REALIZED VALUE
The actual value of leased property at the conclusion of the lease term.  “Realized value” is to be distinguished from “residual” or “term value” which are estimations at the inception of the lease of the value of the leased property at the end of the lease term.

REMARKETING
The process of selling or leasing the leased equipment to another party upon termination of the original lease term or default by the lessee.  The lessor can remarket the equipment or contract with another party, such as the manufacturer, to remarket the equipment in exchange for lease renewal payments.

RENEWAL OPTION
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.

RENTAL AGREEMENT
A short service lease, usually less than 21 months in duration.

RESERVES
An account established to cover losses on uncollected receivables.
RESIDUAL
The value of the leased property at the end of the lease term as estimated at the time the lease is executed; term value.  Although the terms “residual value” or “term value” are sometimes used in reference to the actual value of the property at the conclusion of the term, the term “realized value” is the more commonly used and more appropriate term for the actual value of the property at the conclusion of the lease term.

RE-WRITE
After the lease is booked and a change is requested, it will need to be revised and sent back to accounting.

SALE-LEASEBACK
A transaction under which the lessee sells the property to be leased to the lessor, then leases back the same property and continues to enjoy its use.  This type of transaction is typically a lease in form, but a loan and chattel mortgage in substance.  Since by the definition, the property cannot be new, it meets a whole different set of criteria for tax benefits, such as its depreciation base.

SCHEDULE A
Final invoice.

SECTION 179
A PROVISION OF THE Internal Revenue Code, which allows the taxpayer to elect to deduct certain types of property as s direct expense against income, rather than depreciating the asset over its tax life, as set forth by the IRS.

SECURITIZATION
A devise of structured financing where an entity seeks to pool together its interest in identifiable cash flows over time, transfer the same to investors either with or without the support of further collaterals and thereby achieve the purpose of financing.  Though the end-result of securitization is financing, but it is not “financing” as such, since the entity securitizing its assets it not borrowing money, but selling a stream of cash flows that was otherwise to accrue to it.

SERVICE LEASE
(Also a form of Operating Lease):  A lease in which the lessor provides service such as maintenance and care of leased property.  The separate maintenance agreement that the lessee was required to purchase.

SECURITY DEPOSIT
A specific amount paid at the inception of the lease by the lessee to insure full compliance with the lease and to provide the lessor with some protection against defaults delays, or other failures of performance by the lessee.  Occasionally, advance periodic lease payments may serve the purpose of a security deposit but more frequently, the security deposit is a separately identified obligation.

SECURED LOAN
A type of transaction governed by UCC Article 9 in which the borrower pledges some asset as collateral for the loan, which then becomes a secured debt owed to the creditor who gives the loan.

SECURED PARTY
The lender or seller who is holding the security interest or lien that is against an asset that has been pledged.  Secured parties are satisfied before the unsecured parties from the proceeds of a foreclosure or liquidation sale.

SECURITY AGREEMENT
The agreement between a debtor (borrower) and a creditor (lender), granting the creditor a security interest (the right to seize the property specified in the agreement).  A security agreement is effective according to its terms between the parties, against purchasers of the collateral and against creditors.

SITE INSPECTIONS
Site Inspections are required for any transaction with used equipment cost over $25,000 or any transaction with new equipment cost over $50,000. (Exceptions for long time approved vendors, requires credit committee approval).

SKIPPED PAYMENT LEASE
A lease that contains a payment stream that permits the lessee to make payments only during certain periods of the year.

SOFT COST
A cost for an item that is not considered direct construction cost.  Ex:  Installation, freight, tax.
Soft costs are limited to 10% of the amount of the transaction unless otherwise noted in program guidelines and full financial disclosure is required.  Exclude 100% financing for software.

STEP PAYMENT LEASE
A lease that contains a payment stream that requires the lessee to make payments that either increase (step up) or decrease (step down) in amount over the term of the lease.

STIPULATED TERMINATION VALUES
The value of leased property at given points in time during the lease term as agreed by both lessor and lessee.  This is used for purposes of determining liability upon early termination of the lease.

SYNDICATION
Method of selling property whereby the promoter (the syndicator) sells interests or shares in the property to investors in the form of a partnership, limited partnership or tenancy in common, to raise funds to cover the selling price.

TIB
Time in Business

TRAC LEASE
A lease on a qualified automobile, truck or trailer, which may be considered a true lease for federal income tax purposes even though it contains a Terminal Rental Adjustment Clause (“TRAC”), which effectively guarantees the lessor the residual value.  NOTE:  The mere existence of a TRAC does not, in and of itself, assure true lease status.  In order to qualify as a true lease for federal income tax purposes, the lessor must also:  Maintain a minimum at-risk position equal to borrowings used to fund the vehicle (in essence, a non-recourse financing); Obtain a lessee certification that the lessee will use the vehicle more than 50% for business.

TRUE LEASE
A lease, which for tax purposes, fails to meet all of the tests for a conditional sales contract under IRS Revenue Ruling 55-540 and therefore entitles the lessor to qualify for the tax benefits of ownership and the lessee to claim the entire amount of the lease rental as a tax deduction.

UNIFORM COMMERCIAL CODE (UCC)
A code of commercial law enacted by individual states.  Certain sections of the UCC govern lien perfection, the effect of perfection or non-perfection and the priority of security interests and agricultural liens.

UCC Filings
UCC-1: Required to be filed on every consolidated customer exposure over $20,000 within 20 days of origination.

UCC-3:  Amendment/Termination Form.  UCC-3’s should be filed in even of change in leased Equipment, or at termination of the lease (once lessee has fulfilled all obligations including obligation to return Equipment).  In many jurisdictions the lessor must file UCC-3 terminations after all requirements of the lease have been met or face financial penalties.

UPFRONT COST OF EQUIPMENT
Sales tax is collected on the cost of equipment.  Payment is not broken out on the contract.  If vendor has tax on invoice and sales tax matches what AEF is charging, it is ok to pay vendor the sales tax.

UPFRONT GROSS RECEIVABLE
Sales tax is collected on the Gross Receivables for the total payments that will be paid.  AEF must collect and remit sales tax.

UNSECURED LOAN
A loan that is not secured by assets, but is based solely on the creditworthiness of the customer.

USE TAX
A tax imposed on the use of tangible personal property within a taxing jurisdiction.

VENDOR
A purveyor of equipment from whom a lessor purchases equipment at the specific request of a lessee for a lease to that lessee; a supplier.

WAIVER
The voluntary relinquishment of a known right.

YIELD
The rate of return to the lessor in a lease investment.