Today's organizations need to make the most of their resources to compete successfully and obtain the appropriate tools to be in a position to take advantage of opportunities when presented. Companies must grow revenue, increase productivity, or cut costs with their capital expenditures. At eMazzanti Capital we provide a variety of financing options with your goals in mind.We specialize in financing networks by providing innovative, flexible financial programs to eMazzanti customers worldwide. These programs allow companies to maximize cash flow, preserve capital budgets, gain tax advantages, and retain the flexibility to easily upgrade technologies as their needs evolve.
Choose to finance your technology solutions with eMazzanti Capital and your organization can:
- Improve productivity with the tools your firm needs today to compete well into tomorrow.
- Grow revenue with faster responses to customers’ needs, improve operational efficiencies, or better execution on opportunities that exist in the marketplace today.
- Cut costs by replacing systems that cost more to maintain then the operation of today’s alternatives.
- Conserve valuable capital by spreading the costs of technology over time, preserving lines of credit, and freeing liquid capital for other investments.
- Reduce total cost of ownership by applying financial services management across the entire life-cycle of the solution, ensuring benefits from up-to-date technology at the lowest cost.
- Simplify budgets by using operating expense (OpEx) budgets to acquire capital equipment now.
- Reduce impact on book earnings, since lease payments are made from pre-tax rather than after-tax earnings and, unlike capital purchases, require no public disclosure.
- Lease with maximum flexibility using payment schedules to match cash flow, budget, and ongoing technology upgrade requirements.
- Simplify technology acquisition with a fast, easy documentation process and the ability to combine solutions, software, and services into a single periodic payment.
To begin we offer two tools on the road to a fast approval. The first is a quick quote calculator which displays possible financial scenarios. With your program choice and company information in hand complete the one page credit application and you are on your way. Start today and click the link below that suits your needs.
Lease Types
eMazzanti Capital and/or its partners offer the standard lease plans listed below. In situations where different needs exist, we also have specialized programs such as seasonal, deferred, customized, and zero down.
Fair Market Value
This plan offers the most options both during and at the end of the lease term for those worried about obsolescence or wanting a small security deposit and a relatively low monthly payment. At the end of the lease term, the lessee has three options: extend the term of the lease, return the equipment, or buy it at its fair market value. Marlin also offers financing for those wishing to buy the equipment at the end of the lease term. A True Lease allows the most cost to be deferred to the end of the lease when a decision to retain or upgrade the equipment can be made.
10% Security Deposit
Because this program offers the lowest monthly payment, it is especially attractive to those who can afford to pay a 10% security deposit of the lease amount at the beginning of the lease. End-of-lease options still apply. Use the deposit to extend the lease or return the equipment and request the refunded deposit.
10% Purchase Option
This plan offers the customer a fixed purchase option at the end of the lease term. Upon final payment, the customer can continue to lease the equipment, return the equipment, or buy it at 10% of the original equipment cost.
$1.00 Buy Out
For those who are fairly certain they wish to purchase the equipment at the end of the lease term, this is the recommended plan. Once the lease term expires, the equipment is simply purchased for $1.00.
Fair Market Value
This plan offers the most options both during and at the end of the lease term for those worried about obsolescence or wanting a small security deposit and a relatively low monthly payment. At the end of the lease term, the lessee has three options: extend the term of the lease, return the equipment, or buy it at its fair market value. Marlin also offers financing for those wishing to buy the equipment at the end of the lease term. A True Lease allows the most cost to be deferred to the end of the lease when a decision to retain or upgrade the equipment can be made.
10% Security Deposit
Because this program offers the lowest monthly payment, it is especially attractive to those who can afford to pay a 10% security deposit of the lease amount at the beginning of the lease. End-of-lease options still apply. Use the deposit to extend the lease or return the equipment and request the refunded deposit.
10% Purchase Option
This plan offers the customer a fixed purchase option at the end of the lease term. Upon final payment, the customer can continue to lease the equipment, return the equipment, or buy it at 10% of the original equipment cost.
$1.00 Buy Out
For those who are fairly certain they wish to purchase the equipment at the end of the lease term, this is the recommended plan. Once the lease term expires, the equipment is simply purchased for $1.00.
Q Can my lease be cancelled or paid off early?
A No, you may not cancel the lease since it is a non-cancelable agreement. At any time during the course of your lease (before the expiration of the initial term) you may contact eMazzanti Capital for a quote to buyout, add-on or upgrade your equipment. Should you decide to buyout or upgrade the equipment on your lease, you will still be responsible for the remaining balance of payments plus any other outstanding obligations, including but not limited to sales tax, late fees, property taxes and interim rent charges.
Q What is the interest rate in this lease?
A Since you are leasing and not taking out a bank loan to finance your purchase, there is no “interest rate” as we usually think of one. It’s more like leasing office space. You’re paying to rent the equipment, with the monthly payment amount based on the type of leasing plan you choose, the terms of the lease and the cost of the equipment.
Q What should I do if I have problems with the equipment that I leased?
A The vendor providing the equipment is solely responsible for any service or warranty issues. eMazzanti Capital’s role is to assist you in financing the equipment, the same way a bank would finance a car.
Q Why did you request my personal guaranty?
A A personal guaranty is typically requested when an applicant is unable to credit qualify on the strength of the business alone. eMazzanti Capital utilizes third party databases in an attempt to acquire sufficient credit information. The decision to require a personal guaranty is based on the experience and discretion of the credit analyst reviewing the application.
Q When is my first payment due and what is Interim Rent?
A After eMazzanti Capital confirms that the equipment has been delivered and we’ve received all of the required documents, your equipment supplier is paid. We then set up the lease contract on our billing system and an invoice is sent to you for the first payment due. This payment covers the following full 30-day period. Included on the first invoice is a charge for interim rent which covers the period between when we pay your vendor and when the first lease payment is due.
Q What is the Documentation Fee?
A eMazzanti Capital does not charge an application fee. We do, however, charge a one-time documentation fee to compensate us for processing the lease documents and reimburse us for any fees incurred with filing UCC-1 financing statements.
Q Why am I required to insure my leased equipment?
A Since the leased equipment is owned by eMazzanti Capital, eMazzanti Capital must ensure that if the equipment is destroyed or stolen, the lease will be paid off from the proceeds of the insurance policy. Most commercial policies cover leased equipment; all you need to do is have your insurance agent forward us evidence of property insurance showing eMazzanti Capital as a Loss Payee. This is usually done at not cost to you. If you do not give us proof of property insurance, then depending on the original equipment cost we may obtain property insurance to cover our interests and charge you a fee for such coverage. Upon our receipt of evidence of acceptable property coverage maintained by you, we will no longer bill you under our insurance program.
Q What happens at the end of the lease term?
A Unless you have chosen one of our fixed purchase option plans, you are responsible for returning the equipment in good working condition per the terms and conditions of the lease agreement. If you do not return the equipment in accordance with your lease terms, your lease will renew for the period specified in the lease. If you chose a fixed purchase option, you must exercise your rights by giving advance notice to eMazzanti Capital per the terms and conditions of your lease agreement.
Q What taxes am I responsible for?
A In most states and some local jurisdictions, eMazzanti Capital is required to pay a Sales or Use tax on each monthly payment. Since the lease payment was calculated in advance, and these rates change from time-to-time, the tax amount is billed separately. In certain states, the full amount of Sales/Use taxes is due at the inception of the lease, and the responsibility to pay the Sales/Use tax falls on eMazzanti Capital. In these situations, the Sales/Use tax is added to the equipment cost to calculate the monthly payment.
Many states and local jurisdictions charge an annual tax on business tangible personal property. Since eMazzanti Capital is the legal owner of the equipment, we are required to pay this tax. Our lease rate does not include these property taxes. We pass this cost on to you by invoicing your account. In most cases you will receive an invoice for the yearly estimate of the tax. When the actual tax is paid your account will be reconciled and you will be credited or invoiced for any differences. Again, property taxes are charged periodically and are not included in the calculation for the base monthly payment.
Where required by state law, taxes may be applied to late fees, insurance, interim rent and the reimbursement of property taxes.
Q What are the tax benefits associated with leasing?
A As the lessee, you may be able to deduct the monthly lease payment as a business expense on your tax returns. You should seek specific advice from your accountant. From eMazzanti Capital's perspective as the lessor, unless you chose a $1.00 buyout option, eMazzanti Capital is entitled to any tax benefits associated with ownership.
A No, you may not cancel the lease since it is a non-cancelable agreement. At any time during the course of your lease (before the expiration of the initial term) you may contact eMazzanti Capital for a quote to buyout, add-on or upgrade your equipment. Should you decide to buyout or upgrade the equipment on your lease, you will still be responsible for the remaining balance of payments plus any other outstanding obligations, including but not limited to sales tax, late fees, property taxes and interim rent charges.
Q What is the interest rate in this lease?
A Since you are leasing and not taking out a bank loan to finance your purchase, there is no “interest rate” as we usually think of one. It’s more like leasing office space. You’re paying to rent the equipment, with the monthly payment amount based on the type of leasing plan you choose, the terms of the lease and the cost of the equipment.
Q What should I do if I have problems with the equipment that I leased?
A The vendor providing the equipment is solely responsible for any service or warranty issues. eMazzanti Capital’s role is to assist you in financing the equipment, the same way a bank would finance a car.
Q Why did you request my personal guaranty?
A A personal guaranty is typically requested when an applicant is unable to credit qualify on the strength of the business alone. eMazzanti Capital utilizes third party databases in an attempt to acquire sufficient credit information. The decision to require a personal guaranty is based on the experience and discretion of the credit analyst reviewing the application.
Q When is my first payment due and what is Interim Rent?
A After eMazzanti Capital confirms that the equipment has been delivered and we’ve received all of the required documents, your equipment supplier is paid. We then set up the lease contract on our billing system and an invoice is sent to you for the first payment due. This payment covers the following full 30-day period. Included on the first invoice is a charge for interim rent which covers the period between when we pay your vendor and when the first lease payment is due.
Q What is the Documentation Fee?
A eMazzanti Capital does not charge an application fee. We do, however, charge a one-time documentation fee to compensate us for processing the lease documents and reimburse us for any fees incurred with filing UCC-1 financing statements.
Q Why am I required to insure my leased equipment?
A Since the leased equipment is owned by eMazzanti Capital, eMazzanti Capital must ensure that if the equipment is destroyed or stolen, the lease will be paid off from the proceeds of the insurance policy. Most commercial policies cover leased equipment; all you need to do is have your insurance agent forward us evidence of property insurance showing eMazzanti Capital as a Loss Payee. This is usually done at not cost to you. If you do not give us proof of property insurance, then depending on the original equipment cost we may obtain property insurance to cover our interests and charge you a fee for such coverage. Upon our receipt of evidence of acceptable property coverage maintained by you, we will no longer bill you under our insurance program.
Q What happens at the end of the lease term?
A Unless you have chosen one of our fixed purchase option plans, you are responsible for returning the equipment in good working condition per the terms and conditions of the lease agreement. If you do not return the equipment in accordance with your lease terms, your lease will renew for the period specified in the lease. If you chose a fixed purchase option, you must exercise your rights by giving advance notice to eMazzanti Capital per the terms and conditions of your lease agreement.
Q What taxes am I responsible for?
A In most states and some local jurisdictions, eMazzanti Capital is required to pay a Sales or Use tax on each monthly payment. Since the lease payment was calculated in advance, and these rates change from time-to-time, the tax amount is billed separately. In certain states, the full amount of Sales/Use taxes is due at the inception of the lease, and the responsibility to pay the Sales/Use tax falls on eMazzanti Capital. In these situations, the Sales/Use tax is added to the equipment cost to calculate the monthly payment.
Many states and local jurisdictions charge an annual tax on business tangible personal property. Since eMazzanti Capital is the legal owner of the equipment, we are required to pay this tax. Our lease rate does not include these property taxes. We pass this cost on to you by invoicing your account. In most cases you will receive an invoice for the yearly estimate of the tax. When the actual tax is paid your account will be reconciled and you will be credited or invoiced for any differences. Again, property taxes are charged periodically and are not included in the calculation for the base monthly payment.
Where required by state law, taxes may be applied to late fees, insurance, interim rent and the reimbursement of property taxes.
Q What are the tax benefits associated with leasing?
A As the lessee, you may be able to deduct the monthly lease payment as a business expense on your tax returns. You should seek specific advice from your accountant. From eMazzanti Capital's perspective as the lessor, unless you chose a $1.00 buyout option, eMazzanti Capital is entitled to any tax benefits associated with ownership.
Add-On
A transaction to add related equipment to an existing lease. Typically, this term is used when the new equipment is financed using the same lease structure (i.e, Fair Market Value, $1.00 Purchase Option, Fixed Purchase Option, etc.) as was used in the underlying transaction except that the lease term for the add-on is set so that it expires conterminously with (on the same date as) the original transaction.
Advance Payments
Payments made by the lessee at the inception of a leasing transaction.
Amortization
A breakdown of periodic loan payments into two components: a principal portion and an interest portion.
APR
Annual Percentage Rate. The effective rate taking into account compounding and other fees. The nominal rate of interest for a specified period (usually one year).
Bargain Purchase Option
An option given to the lessee to purchase the equipment on lease at a price that is less than the expected fair market value so that, at the inception of the lease, it is reasonable to assume that the lessee will definitely purchase the equipment on the option date.
Capital Lease
A lease that meets at least one of the criteria outlined in paragraph 7 of FASB 13 and, therefore, must be treated essentially as a loan for book accounting purposes. The four criteria are:
Capped Fair Market Value Lease
A Fair Market Value Lease with a predetermined ceiling to limit Fair Market exposure at the end of the lease term.
Conditional Sales Contract
The Seller sells the asset and transfers possession to the Purchaser, but retains title to the asset until the Purchaser has fully paid for it. In other words, a contract for a sale where the customer pays for his purchase in installment payments rather than all at once.
Coterminous
Two or more leases that are linked so that both will terminate at the same time.
Depreciation
A tax deduction representing a reasonable allowance for exhaustion, wear and tear, and obsolescence, that is taken by the owner of the equipment and by which the cost of the equipment is allocated over time. Depreciation decreases the company's balance sheet assets and is also recorded as an operating expense for each period. Various methods of depreciation are used which alter the number of periods over which the cost is allocated and the amount expensed each period.
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 current, or today's, dollars. Use of a discount rate removes the time value of money from future cash flows.
Estimated Useful Life
The period during which an asset is expected to be useful in trade or business.
The price for which property can be sold in an "arms length" transaction; that is, between informed, unrelated, and willing parties, each of which is acting rationally and in its own best interest.
Fair Market Value Lease (FMV)
A lease which includes an option for the lessee to either renew the lease at a fair market value renewal or purchase the equipment for its fair market value at the end of the lease term. Though often referred to as tax leased, not all Cisco Systems Capital Fair Market Value Leases qualify as tax leases.
Finance Lease
A lease used to finance the purchase of equipment; not a true lease. Finance leases are generally considered to be capital leases from an accounting perspective and non-tax leases from a tax perspective.
Financial Accounting Standards Board 13
Statement number 13 of the Financial Accounting Standards Board (FASB) which establishes standards for lessees' and lessors' accounting and reporting for leases. This includes the characterization of a lease as an operating lease or capital lease for the lessee's purposes.
A company's assets, liabilities and net income will differ depending on how it chooses to structure its leases. The provisions of FASB 13 derive from the view that a lease that transfers substantially all of the benefits and risks of ownership should be accounted for as the acquisition of an asset and the incurrence of an obligation by the lessee (a capital lease) and as a sale or financing by the lessor. Other leases should be accounted for as the rental of property (operating leases).
Fixed Purchase Option
An option given to the lessee to purchase the leased equipment from the lessor on the option date for a guaranteed price. Both the date and the price must be determined at the inception of the lease. A typical fixed purchase option is 10% of the original cost of the equipment.
Full Payout Lease
A lease in which the total of the lease payments pays back to the lessor the entire cost of the equipment including financing, overhead, and a reasonable rate of return, with little or no dependence on a residual value.
Incremental Borrowing Rate
The rate that, at the inception of the lease, the lessee would have incurred to borrow over a similar term the funds necessary to purchase the leased asset.
Lease
A contract through which an owner of equipment (the lessor) conveys the right to use its equipment to another party (the lessee) for a specified period of time (the lease term) for specified periodic payments.
Lease Purchase
Full payout, net leases structured with a term equal to the equipment's estimated useful life. Because many Lease Purchases include a bargain purchase option for the lessee to purchase the equipment for one dollar at the expiration of the lease, these leases are often referred to as dollar buyout or buck-out leases. Lease Purchases are generally considered to be Capital Leases from an accounting perspective and non-tax leases from a tax perspective due to their bargain purchase option and length of lease term.
Lease Schedule
A schedule to a Master Lease agreement describing the leased equipment, rentals and other terms applicable to the equipment.
Lessee
The party to a lease agreement who is obligated to pay the rentals to the lessor and is entitled to use and possess the leased equipment during the lease term.
Lessor
The party to a lease agreement who has legal or tax title to the equipment (in the case of a true tax lease), grants the lessee the right to use the equipment for the lease term and is entitled to receive the rental payments.
Master Lease
A continuing lease arrangement whereby additional equipment can be added from time to time merely by describing that equipment in a new lease schedule executed by the parties. The original lease contract terms and conditions apply to all subsequent schedules. To be contrasted with a lease contract for a single transaction involving a specific unit of equipment, a Master Lease is essentially a line of credit to draw from over time in order to purchase equipment.
Municipal Lease
A lease designed to meet the special needs of state and local governments. The lease contains a non- appropriation clause which states that the only condition under which the entity may be released from its payment obligation is when the legislature or funding authority fails to appropriate funds. Since the lessee is a municipality or an organization supporting the government, it is exempt from paying federal income taxes. For this reason, the IRS does not charge the lessor income taxes on leases to these customers.
Off Balance Sheet Financing
A lease that qualifies as an Operating Lease for the lessee's financial accounting purposes. Such leases are referred to as off-balance sheet financing due to their exclusion from the balance sheet asset and debt presentation, except for that portion of the payments that is due in the current fiscal period. Full disclosure of such transactions is typically made in the auditor's notes to the financial statements. Periodic payments are recorded as expense items on the lessee's income statement.
Operating Lease
A lease which is treated as a true lease (as opposed to a loan) for book accounting purposes. As defined in FASB 13, an operating lease must have all of the following characteristics:
Periodic payments are due at the beginning of each period.
Payment in Arrears
Periodic payments are due at the end of each period.
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.
Purchase Option
An option given to the lessee to purchase the equipment from the lessor, usually as of a specified date.
Residual Value
The book value that the lessor depreciates a piece of equipment down to during the lease term, typically based on an estimate of the future value, less a safety margin.
Sale-leaseback
A transaction that involves the sale of equipment to a leasing company and a subsequent lease of the same equipment back to the original owner, who continues to use the equipment.
Skip-payment Lease
A lease that contains a payment stream requiring the lessee to make payments only during certain periods of the year.
Step-up or Step-down
A feature of a lease that contains a payment stream that either increases (step-up) or decreases (step-down) in amount over the term of the lease.
Tax-Exempt Entity
Tax-Exempt Entities, for federal income tax purposes, generally include: any federal, state or local government (including their agencies and instrumentalities); any organization that is exempt from federal income taxes, such as non-profit charitable organizations; and most foreign persons or entities, unless a significant portion of their gross income is subject to federal income tax.
Tax Lease
A generic term for a lease in which the lessor takes the risk of ownership (as determined by various IRS pronouncements) and, as the owner, is entitled to the benefits of ownership, including tax benefits.
Useful Life
The period of time during which an asset will have economic value and be usable. The useful life of an asset is sometimes called the economic life of the asset. To qualify as an operating lease, the property must have a remaining useful life of 25 percent of the original estimated useful life of the leased property at the end of the lease term, and at least a life of one year.
Upgrade
To trade in leased equipment for a newer, more advanced model during the lease term.
A transaction to add related equipment to an existing lease. Typically, this term is used when the new equipment is financed using the same lease structure (i.e, Fair Market Value, $1.00 Purchase Option, Fixed Purchase Option, etc.) as was used in the underlying transaction except that the lease term for the add-on is set so that it expires conterminously with (on the same date as) the original transaction.
Advance Payments
Payments made by the lessee at the inception of a leasing transaction.
Amortization
A breakdown of periodic loan payments into two components: a principal portion and an interest portion.
APR
Annual Percentage Rate. The effective rate taking into account compounding and other fees. The nominal rate of interest for a specified period (usually one year).
Bargain Purchase Option
An option given to the lessee to purchase the equipment on lease at a price that is less than the expected fair market value so that, at the inception of the lease, it is reasonable to assume that the lessee will definitely purchase the equipment on the option date.
Capital Lease
A lease that meets at least one of the criteria outlined in paragraph 7 of FASB 13 and, therefore, must be treated essentially as a loan for book accounting purposes. The four criteria are:
- title passes automatically by the end of the lease term
- lease contains a bargain purchase option (i.e., less than the fair market value)
- lease term is greater than 75% of estimated economic life of the equipment present value of lease payments is greater than 90% of the equipment's fair market value
Capped Fair Market Value Lease
A Fair Market Value Lease with a predetermined ceiling to limit Fair Market exposure at the end of the lease term.
Conditional Sales Contract
The Seller sells the asset and transfers possession to the Purchaser, but retains title to the asset until the Purchaser has fully paid for it. In other words, a contract for a sale where the customer pays for his purchase in installment payments rather than all at once.
Coterminous
Two or more leases that are linked so that both will terminate at the same time.
Depreciation
A tax deduction representing a reasonable allowance for exhaustion, wear and tear, and obsolescence, that is taken by the owner of the equipment and by which the cost of the equipment is allocated over time. Depreciation decreases the company's balance sheet assets and is also recorded as an operating expense for each period. Various methods of depreciation are used which alter the number of periods over which the cost is allocated and the amount expensed each period.
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 current, or today's, dollars. Use of a discount rate removes the time value of money from future cash flows.
Estimated Useful Life
The period during which an asset is expected to be useful in trade or business.
- used for purposes of calculating the maximum allowable term of a tax lease.
- used for determining whether or not the lease is a Capital Lease.
- used to determine the method of depreciation for a capitalized leased asset.
- may or may not be the same as the life used for income tax purposes.
The price for which property can be sold in an "arms length" transaction; that is, between informed, unrelated, and willing parties, each of which is acting rationally and in its own best interest.
Fair Market Value Lease (FMV)
A lease which includes an option for the lessee to either renew the lease at a fair market value renewal or purchase the equipment for its fair market value at the end of the lease term. Though often referred to as tax leased, not all Cisco Systems Capital Fair Market Value Leases qualify as tax leases.
Finance Lease
A lease used to finance the purchase of equipment; not a true lease. Finance leases are generally considered to be capital leases from an accounting perspective and non-tax leases from a tax perspective.
Financial Accounting Standards Board 13
Statement number 13 of the Financial Accounting Standards Board (FASB) which establishes standards for lessees' and lessors' accounting and reporting for leases. This includes the characterization of a lease as an operating lease or capital lease for the lessee's purposes.
A company's assets, liabilities and net income will differ depending on how it chooses to structure its leases. The provisions of FASB 13 derive from the view that a lease that transfers substantially all of the benefits and risks of ownership should be accounted for as the acquisition of an asset and the incurrence of an obligation by the lessee (a capital lease) and as a sale or financing by the lessor. Other leases should be accounted for as the rental of property (operating leases).
Fixed Purchase Option
An option given to the lessee to purchase the leased equipment from the lessor on the option date for a guaranteed price. Both the date and the price must be determined at the inception of the lease. A typical fixed purchase option is 10% of the original cost of the equipment.
Full Payout Lease
A lease in which the total of the lease payments pays back to the lessor the entire cost of the equipment including financing, overhead, and a reasonable rate of return, with little or no dependence on a residual value.
Incremental Borrowing Rate
The rate that, at the inception of the lease, the lessee would have incurred to borrow over a similar term the funds necessary to purchase the leased asset.
Lease
A contract through which an owner of equipment (the lessor) conveys the right to use its equipment to another party (the lessee) for a specified period of time (the lease term) for specified periodic payments.
Lease Purchase
Full payout, net leases structured with a term equal to the equipment's estimated useful life. Because many Lease Purchases include a bargain purchase option for the lessee to purchase the equipment for one dollar at the expiration of the lease, these leases are often referred to as dollar buyout or buck-out leases. Lease Purchases are generally considered to be Capital Leases from an accounting perspective and non-tax leases from a tax perspective due to their bargain purchase option and length of lease term.
Lease Schedule
A schedule to a Master Lease agreement describing the leased equipment, rentals and other terms applicable to the equipment.
Lessee
The party to a lease agreement who is obligated to pay the rentals to the lessor and is entitled to use and possess the leased equipment during the lease term.
Lessor
The party to a lease agreement who has legal or tax title to the equipment (in the case of a true tax lease), grants the lessee the right to use the equipment for the lease term and is entitled to receive the rental payments.
Master Lease
A continuing lease arrangement whereby additional equipment can be added from time to time merely by describing that equipment in a new lease schedule executed by the parties. The original lease contract terms and conditions apply to all subsequent schedules. To be contrasted with a lease contract for a single transaction involving a specific unit of equipment, a Master Lease is essentially a line of credit to draw from over time in order to purchase equipment.
Municipal Lease
A lease designed to meet the special needs of state and local governments. The lease contains a non- appropriation clause which states that the only condition under which the entity may be released from its payment obligation is when the legislature or funding authority fails to appropriate funds. Since the lessee is a municipality or an organization supporting the government, it is exempt from paying federal income taxes. For this reason, the IRS does not charge the lessor income taxes on leases to these customers.
Off Balance Sheet Financing
A lease that qualifies as an Operating Lease for the lessee's financial accounting purposes. Such leases are referred to as off-balance sheet financing due to their exclusion from the balance sheet asset and debt presentation, except for that portion of the payments that is due in the current fiscal period. Full disclosure of such transactions is typically made in the auditor's notes to the financial statements. Periodic payments are recorded as expense items on the lessee's income statement.
Operating Lease
A lease which is treated as a true lease (as opposed to a loan) for book accounting purposes. As defined in FASB 13, an operating lease must have all of the following characteristics:
- lease term is less than 75% of estimated economic life of the equipment.
- present value of lease payments is less than 90% of the equipment's fair market value.
- lease cannot contain a bargain purchase option (i.e., less than the fair market value).
- ownership is retained by the lessor during and after the lease term.
- An operating lease is accounted for by the lessee without showing an asset (for the equipment) or a liability (for the lease payment obligations) on his balance sheet. Periodic payments are accounted for by the lessee as operating expenses of the period.
Periodic payments are due at the beginning of each period.
Payment in Arrears
Periodic payments are due at the end of each period.
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.
Purchase Option
An option given to the lessee to purchase the equipment from the lessor, usually as of a specified date.
Residual Value
The book value that the lessor depreciates a piece of equipment down to during the lease term, typically based on an estimate of the future value, less a safety margin.
Sale-leaseback
A transaction that involves the sale of equipment to a leasing company and a subsequent lease of the same equipment back to the original owner, who continues to use the equipment.
Skip-payment Lease
A lease that contains a payment stream requiring the lessee to make payments only during certain periods of the year.
Step-up or Step-down
A feature of a lease that contains a payment stream that either increases (step-up) or decreases (step-down) in amount over the term of the lease.
Tax-Exempt Entity
Tax-Exempt Entities, for federal income tax purposes, generally include: any federal, state or local government (including their agencies and instrumentalities); any organization that is exempt from federal income taxes, such as non-profit charitable organizations; and most foreign persons or entities, unless a significant portion of their gross income is subject to federal income tax.
Tax Lease
A generic term for a lease in which the lessor takes the risk of ownership (as determined by various IRS pronouncements) and, as the owner, is entitled to the benefits of ownership, including tax benefits.
Useful Life
The period of time during which an asset will have economic value and be usable. The useful life of an asset is sometimes called the economic life of the asset. To qualify as an operating lease, the property must have a remaining useful life of 25 percent of the original estimated useful life of the leased property at the end of the lease term, and at least a life of one year.
Upgrade
To trade in leased equipment for a newer, more advanced model during the lease term.
