Collateral

Equipment or other tangible assets or securities pledged by the lessee to the lessor, to minimize the risk of default.

Compensating balances

The amount of funds a bank requires a borrower to keep on deposit during the term of a loan.  These deposits are usually non-interest bearing and thereby increase the borrower's interest cost.

End-of-term options

Options in the lease agreement that give the lessee flexibility in its treatment of the leased equipment at the end of the lease term.  Common end-of-term options include purchasing the equipment, renewing the lease or returning the equipment to the lessor.

Equipment schedule

A document incorporated by reference into the lease agreement that describes, in detail, the equipment being leased.  The schedule states the lease term, commencement date, repayment schedule and location of the equipment.  One Master Lease Agreement may have many Equipment Schedules.

Fair market value

The value of a piece of equipment if it were to be sold in an arms-length transaction between a willing buyer and a willing seller.

FASB 13

Financial Accounting Standards Board Statement No. 13, which specifies the proper classification, accounting and reporting of leases by lessors and lessees.

Financial Accounting Standards Board (FASB)

The rule-making body that establishes financial reporting guidelines.

Finance lease

A Capital lease or Non-Tax lease.

Fixed purchase option

An option in the lease agreement allowing the lessee to purchase the equipment at a predetermined price at the end of the lease term.

Lease

(See Tektronix eQuip Finance)

Lease rate factor

A percentage amount that, when multiplied by the original equipment cost, produces the monthly rental payment.  This is NOT the same as the interest rate in the lease.

Lease term

The fixed, non-cancellable term of the lease.

Lessee

The user of the equipment being leased.

Lessor

The owner of the equipment leased to a lessee or user.  (Legal title under the Uniform Commercial Code may be with the lessee in Finance leases and Non-Tax leases.)

Master lease agreement

A lease agreement that involves multiple pieces of equipment and/or various equipment delivered over some period of time.  The agreement can also address multiple delivery locations and a split order size.  These logistics are generally handled through an Equipment Schedule.

Non-tax lease

A lease in which the lessee is, or will become, the owner of the equipment.  The lessee bears all the risks and benefits (including tax benefits) of equipment ownership.

Off-balance sheet financing

Any form of financing, such as an Operating lease, that, for financial reporting purposes, is not required to be reported on the firm's balance sheet.

On-balance sheet financing

Any form of financing, such as a Capital lease, that, for financial reporting purposes, is required to be reported as an asset (and corresponding liability) on the company's balance sheet.

Operating lease

A lease which is treated as a true lease, as opposed to a loan or Capital lease, for book accounting purposes.  An Operating lease is accounted for by the lessee without showing the equipment as an asset or the lease as a liability on the balance sheet.  Periodic payments are accounted for by the lessee as operating expenses of the period.

Purchase option

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

Renewal option

An option in the lease agreement that allows the lessee to extend the lease beyond expiration of the initial lease term in exchange for renewal payments.

Residual value

The value, either actual or expected, of leased equipment at the end of the lease.

Sale-Leaseback

A sale of equipment to a leasing company followed by a subsequent lease of the same equipment back to the original owner (who continues to use the equipment).

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Upgrade

An option that allows the lessee to add to, or replace, an existing piece of lease equipment.