Glossary

Bank Line of Credit -  an arrangement between a bank and a business that allows the business to borrow a predetermined, capped amount of money from the bank with a minimum payment due on a monthly basis.

Capital Lease -  (a.k.a. finance lease) a lease considered to have the economic characteristic of asset ownership.

Dollar Buyout – the lessee pays the lessor $1.00 at the end of the lease term in order to transfer ownership.

Equipment Lease – the right to use a piece of equipment given by the owner of the equipment (lessor) to another person or business (lessee) for a fixed or indefinite period of time, whereby the lessee obtains exclusive possession of the property in return for paying the lessor a fixed or determinable payment.

Fair Market Value – a subjective estimate of what a willing buyer would pay a willing seller for a given asset assuming both have a reasonable knowledge of the asset’s worth.

Fixed Buyout – a predetermined amount of money that will need to be paid to the lessor by the lessee at the end of term. Common fixed amounts are 10%, 5%, or 3% of the total equipment value.

Net Lease – A net lease (a.k.a. gross lease) is an equipment lease arrangement where the lessee pays not only the rental of the equipment but is also responsible for the associated general expenses such as the maintenance, repair, and operating costs plus insurance and taxes.

Operating Lease -  a short-term lease in which rental payments are made by the lessee and full ownership rights are kept by the lessor.  An operating lease generally has an option to purchase or return the equipment at the end of the lease term.

Synthetic Lease - a synthetic lease is a transaction that qualifies as a lease from an accounting standpoint, but as a loan from a tax standpoint.

Term Loan - a floating or fixed rate loan that can be used to finance fixed assets, such as equipment, over a given period of time, generally no longer than the useful life of the equipment.

TRAC Lease – (Terminal Rental Adjustment Clause Lease) is a type of true lease that is generally used for vehicles such as trucks, tractors, trailers and buses. A TRAC Lease can be used to get lower, true-tax oriented lease rates and still have a fixed buyout at the end of term.