FAQs | Glossary

Frequently Asked Questions (FAQs)

I leased a car and it was the worst experience. How is equipment leasing any different?
With car leasing from a dealership for personal use, you are required to pay for excessive mileage, the pre-established residual amount of the vehicle at the end of term or when you purchase the vehicle, along with up front costs such as security deposits, etc. This could be costly and there’s usually NO negotiating with the dealer. The purchase price is predetermined in the contract based on what they think your usage will be.

With and ELS TRAC lease (for vehicles & trailers) all that is required up front is first and last month’s rent and a small documentation fee. There are no mileage restrictions, YOU can choose your residual and can either turn the vehicle back in at the end or sell the vehicle. If the actual residual value at the end of the term is higher than what you chose at the beginning of the lease, you’ll pay the difference. If it’s lower, you will receive a “rebate” of the difference.

In an Operating lease, the purchase option is determined at the end of the term by obtaining a fair market value of the equipment. It is NOT PREDETERMINED. This can be obtained by getting vendor quotes, resale values, etc. and the lessor/lessee will come to an agreement. If no agreed upon value is reached, a third party appraiser will come in and appraise the fair market value, or, the equipment can simply be returned to lessor.

Can a commercial (TRAC) lease really help your bottom line?
Whatever your business vehicle needs, a properly structured commercial lease has many valuable financial benefits for companies of all sizes. We understand how vital a business fleet can be to the success of your business. Companies need the right vehicles, but having the wrong financial package on those vehicles can limit future growth and reduce rather than enhance a company's bottom line. Before we suggest a commercial lease for your business, we listen to your goals and offer real solutions by customizing a commercial program for your needs.

How can leasing benefit my business?

• Lower monthly payments
  
• Free up working capital by lowering the amount you pay each month for your business equipment
  
• Operating leases may qualify as off-balance sheet financing
  
• Possible additional tax benefits (contact your tax counsel)
  
• Adjust your TRAC lease terms and vehicle residuals to fit the projected cash flow requirements of your business

What is a TRAC Lease?
Terminal Rental Adjustment Clauses are referred to as TRAC or open end leases. This type of lease allows us to structure the contract to more accurately reflect the lease end value of the vehicle as determined by your intended use. Ultimately, businesses either receive a rebate or must pay additional rent upon final sale of the vehicle.

What type of equipment can our business lease?
Almost anything (see section on list of leasable equipment), from passenger cars to vans to light or heavy duty trucks, even class 8 tractor trailers, street sweepers, tow trucks and other more uniquely functional forms of vehicle types, medical, dental equipment, office equipment, phone systems and the list goes on and on. With regards to a TRAC lease, in order to qualify as a commercial lease, the vehicle must be used more than 50% of the time for business. Vehicles with non-standard equipment require pre-approval and certain vehicles like ambulances, taxis, limos for hire and school vans normally would not qualify.

Why not pay cash or use a bank line-of-credit for our vehicle needs?
Leasing frees up your assets for other uses. Cash can be used to invest in the future success of the business and bank credit lines can remain open for funding additional inventory, receivables, and other expansion needs or cover emergencies as they arise. The yield returned from investing in the business will generally be greater than the financing cost of a lease.

What terms are available?
A standard commercial lease is up to 60 months; however, we recommend setting up your lease term to match the normal trade cycle for the type of equipment you need. Rates are very competitive, TRAC lease mileage is flexible, no down payments are required (only the first & last payments and a small documentation fee) and residuals can easily be customized.

• What happens at the end of the TRAC lease term?
• Purchase the vehicle for the residual value plus any remaining unpaid charges and fees.
  
• Trade-in the vehicle or equipment to cover the remaining amount due.
  
• Return the vehicle to a designated location for disposal and settlement.
  
• And finally, let us help you determine your best option and assist you with additional business vehicle needs for your growing business.

What happens at the end of the Operating lease term?

• Purchase the equipment for the residual value determined at lease end.
  
• Trade-in the equipment for an upgrade.
  
• Return the equipment to a designated location for disposal and settlement.
  
• And finally, let us help you determine your best option and assist you with additional business equipment needs for your growing business.

What happens at the end of the Capital Lease term?

• You own the equipment for a mutually agreed upon bargain purchase option, usually for $1.00 (or $101.00 in California).

Glossary Of Lease Terms

Bargain Purchase Price - Defines the end of term purchase price for a Capital Lease.

Broker - An intermediary between the lessee and lessor. The broker arranges a leasing transaction. The broker is usually paid some fee by the leasing company for its services.

Capital Lease - A specific classification of a lease for accounting purposes. The classification of the lease will determine how the lease is to be accounted for. A lease is accounted for by the lessee as a capital lease if it meets one of the following criteria: (a) at the end of the lease, the lessee owns the property being leased; (b) at the end of the lease, the lessee can purchase the property for a bargain purchase option; (c) the lease term exceeds 75% of the estimated economic life of the leased property; (d) the present value of all lease payments is equal to 90% or more of the cost of the leased property.

Capped Fair Market Value - A provision in the lease allowing the lessee to purchase the leased property for its fair market value, but not exceeding a certain amount. The advantage of the cap is that the lessee will know the maximum payment required to purchase the leased property.

Certificate of Acceptance - A written verification by the lessee that they have received the property to be leased. Most leases begin after the date stated on the certificate of acceptance.

Coterminous - Two or more leases that end at the same time.

Cross Corporate Guaranty - A guarantee by one corporation to pay the lease obligations of another corporation.

Default - If a lessee does not comply with the terms of the lease, a default occurs. Generally, after a default, the lessor can exercise all of its rights under the lease to repossess the property and seek money damages.

Direct Finance Lease - Same as a capital lease except this accounting classification only applies to a lessor.

Dollar Buyout - An option at the end of the lease to buy the leased property for $1.

Economic Life of Leased Property - The estimated time the leased property can be used with normal repairs and maintenance.

Fair Market Value - The technical definition of fair market value is the price a willing buyer will pay a willing seller for leased property on an "as is, where is" basis with both under no compulsion to either buy or sell. In reality, this is a vague term, often creating a question between a lessor and lessee regarding what is the fair market value. Stated another way, what will someone pay for the leased property at the end of a lease.

Fair Market Value Purchase Option - Similar to a purchase option, this lease term gives the lessee the ability to purchase the leased property at its fair market value at the end of a lease.

FAS 13 - Technically, this is the statement of Financial Accounting Standards No. 13 entitled "Accounting for Leases". This book sets forth standards for how parties to a leasing transaction should account for such transaction.

FASB - This is the Financial Accounting Standards Board. This is the group that, on high, dictates the general accounting policy and theory which is to be followed by both internal accountants as well as external auditors.

FAZ-BEE - Another name for FASB.

Financial Statements - Accounting statements that provide specific information about a company's financial position. They include the Profit & Loss Statement, also known as the Income Statement, the Balance Sheet, and the Statement of Cash Flows. Financial statements can generally be audited by an outside CPA firm or be unaudited and, thus, prepared by the company.

Financing Statement - This is a document specified under the Uniform Commercial Code, a law applicable in all states. This puts the world on notice that a security interest has been filed against the person on the form listed as the debtor.

Hell or High Water Clause - This is a provision in a lease agreement which indicates the lessee is required to pay the lease payment for the entire term of the lease. Problems encountered by the lessee with the leased property are not valid reasons for not making lease payments.

Interim Rent - Rent paid for an interim period of time. Many leases begin at the start of a period such as the first of the month. If leased property is received and a certificate of acceptance is signed prior to that date, often there is an interim period between the acceptance and the start of the first lease rental. This period of time is called the interim term during which the interim rent is paid. The interim rent is generally calculated as a percent of the standard monthly rent prorated over the number of days in the month the lessee has use of the leased property.

Investment Grade Credit - Generally refers to a lessee of high credit standing. Technically, an investment grade credit is a company rated highly by one of many recognized credit agencies such as Standard & Poor's.

Lease - A contract giving the lessee the right to use the leased property for a period of time.

Lease Line - A line of credit similar to a bank line of credit. It allows the lessee to easily add additional leased property under the same terms and conditions without negotiating additional agreements.

Lease Rate Factor - This is a percentage which when multiplied by the cost provides a periodic rental. It is a helpful number when used by either a sales person or the lessee. In the event the cost of the leased property is either not exactly known or may change, having the lease rate factor allows a quick recalculation of a lease payment when that number becomes known. Generally expressed as $1.00 of rent for each $1,000 borrowed.

Lease Term - The fixed term of the lease.

Lessee - The user of leased property under the lease.

Lessor - Depending on the type of lease, either the owner of the leased property or the owner of a security interest in the leased property.

Letter of Credit - A specific arrangement between a lessee and one of its banks. The bank agrees in the event of a defined event, the lessor can look to the bank to make payment instead of the lessee. This is similar to a security deposit in that it is one way for a lessor to insure that it will be paid under a lease.

Master Lease - The primary document between the lessor and lessee containing all the general terms and conditions for leasing. Individual leases can then be relatively short and incorporate the master lease by reference. It is a very convenient administrative document so that once agreed, legal terms and conditions never need to be negotiated again.

Middle Market Credit - A lessee without an investment grade credit rating, but generally with sales greater than $50 million annually.

Municipal Lease - Same as a capital lease except that the lessee is a public entity. Although the product and features are identical, the legal documentation is different because of the unique status of public entities.

Net Lease - Any lease where all costs in connection with the use of the leased property are paid by the lessee and are not part of the periodic lease payments. For instance, maintenance, insurance and taxes are paid directly by the lessee. Capital leases are generally net leases.

Operating Lease - Another accounting classification for a lease. A lease that does not meet the criteria for a capital lease is an operating lease. With an operating lease, the lessor is generally taking a risk that at the end of the term the lessee will either purchase the leased property, renew the lease, or the leasing company can remarket the leased property for its residual value.

Personal Guaranty - The guarantee of someone to be individually responsible for the obligations under the lease. Generally for Subchapter S closely held companies and small businesses, a leasing company may ask for a personal guaranty as a way to insure that the lease payments will be made.

Progress Payment Loan - ELS makes all milestone payments required by the vendor until all associated equipment, customization, training, installation and conversion has been provided by the vendor. This product is generally used with larger transactions that require milestone payments over a short time between three months and 18 months.

Purchase Option - Option to purchase leased property at the end of the lease term.

Refundable Security Deposit - An amount paid by a lessee to provide extra protection to the lessor to insure that the lessee will pay its obligations under the lease.

Remarketing - The process of selling or re-leasing leased property which has been returned to the lessor either at the end of the term or as a result of a default in lease.

Remarketing Fee - A fee paid for selling or re-leasing leased property.

Rent Holiday - A period of time during which a lessee is not required to pay rent.

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

Sale-Leaseback - A transaction which involved the sale of property by the lessee to the lessor and a lease of the property back to the lessee.

Security Interest - An interest in property that is acquired for purpose of securing payment of a lease obligation. A security interest allows the holder to obtain the property in the event of default and gives the holder additional rights in the event of bankruptcy.

Spread - The difference between funding costs and the rate of return to the lessor on a lease.

Step Down Lease - Another variant of the "Step Rental Lease". A lease where the lease payments decrease over the term of the lease.

Step Rental Lease - A lease where the rent may change during the term of the lease. The change is known at lease inception and is agreed by both the lessor and the lessee. Often a step rent lease allows the lessee to pay less initially and more later in the term.

Step Up Lease - Similar to, again, a "Step Rental Lease" and a "Step Down Lease" except the lease payment is increased during the term of the lease.

Stipulated Loss Value - This is a term in a lease requiring the lessee to pay the value of the leased property in the event there has been some type of damage or destruction to the leased property.

Term - Generally leases run for 12, 24, 36, 48 or 60 months.

Vendor - An entity that provides leased property to customers.

Vendor Leasing - A working relationship between a leasing company and a vendor to provide leasing to the vendor's customers. In some sense, the leasing company is working as an extension of the vendor providing credit checking, billing and collecting documentation, and customer service. The leasing company, generally, is accepting the credit risk.

Venture Leasing - Generally referred to as a Start-Up.