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Glossary Of Terms
Want to learn more about leasing? Have you recently heard a leasing term with which you are unfamiliar? Explore the following glossary of leasing terms and learn about leasing and how it can benefit you.


To generate glossary contents, choose the first letter of the word you are looking up

 

GLOSSARY OF TERMS

Accelerated Cost Recovery System (ACRS)
The tax depreciation, or cost recovery, method for Internal Revenue Service purposes that governs all depreciable property placed in service between January 1, 1981 and December 31, 1987. Introduced by the 1981 Economic Recovery Tax Act, ACRS replaced the Asset Depreciation Range (ADR) system and was replaced itself by the Modified Accelerated Cost Recovery System (MACRS) of the 1986 Tax Reform Act.
Accelerated Depreciation
Any depreciation method that allows for greater deductions or charges in the earlier years of an asset's depreciable life, with charges becoming progressively smaller in each successive period. Examples of accelerated depreciation are the double declining balance and sum-of-the-years digits methods.
Acceptance Certificate
When leased equipment is delivered and installed, the Lessee typically authorizes the Lessor, in writing, to pay for it. The Lessee's authorization to pay the supplier is indicated on an Equipment Acceptance Certificate form.
Accounts Receivable Financing
Many businesses sell to customers on terms or on an open account basis. The outstanding invoices payable by customers are salable or assignable business assets. Often, businesses sell or pledge Accounts Receivable to Factors or Accounts Receivable Financing specialists to raise capital or to accelerate the receipt of cash. Many of these same businesses use Leasing for the acquisition of equipment.
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 end of term structure as was used in the underlying transaction (e.g., Fair Market Value, $1.00 Purchase Option) and the add-on's lease term will terminate on the same date as the original transaction.
Advance Lease Payments
Many leasing transactions call for one (1), two (2), or more payments in advance. As a rule, when Advance Payments are required for more than just the first periodic payment, the additional Advance Payments will apply to payments due at the end of the Lease. If payments are made monthly, for example, one Advance Payment will apply to the first month's payment while any additional Advance Payments will be applied to payments due at the end of the lease term. Advance Payments are payable at, or prior to, lease inception.

Note: Under certain circumstances, lease agreements can be structured that call for "Payment in Arrears". In this case, no advance payments will be required at lease inception, and lease payments are payable at the end of each lease period during the term

Alternative Minimum Tax (AMT)
An alternative, separate tax calculation based on the taxpayer's regular taxable income and increased by the taxpayer's preferences for the year. Among the preferences that can increase the taxpayer's alternative minimum taxable income is the accelerated portion of depreciation. After certain exemptions and offsets, the taxpayer is required to pay the larger of the regular tax or the alternative minimum tax.
Amortization
For accounting or tax purposes, amortization refers to the distribution of the cost of an asset over its useful life. Alternatively, amortization can refer to the process of reducing a debt obligation through periodic level payments that include both an interest and principal portion.
Annual Percentage Rate (APR)
The effective interest rate over the course of a year, taking into account compounding and other fees.
Application Form
Most Lessors use a Lease Application Form to list the information required to evaluate a prospective Lessee's credit condition and history.

Application forms call for specific information about the applicant, such as, but not limited to:

  • Exact Legal Name of the Business
  • Type of Organization - Proprietorship, Partnership, Corporation
  • State of Incorporation
  • Number of Years in Business
  • Nature of Business
  • Principal(s)/Owner(s) Information - Name, Home Address, SSN#
  • Bank(s)/Trade Reference(s)
  • Equipment Supplier Information and Detailed Equipment List.

Additional Lease Application Information: For equipment costing more than $50,000, accountant prepared financial statements or federal income tax returns will usually be needed. At times, the owner's personal financial statement, tax returns, or bank reference may also be required. Credit criteria and financial information requirements vary and are individually established by lessors in their own discretion.

Appraisal
An evaluation of the value of a specific item of property, usually conducted by a person with expertise with respect to such property.
Appreciation
The increase in value of an asset over time.
Asset
An item of value.
Assignment
Lease Agreements generally contain a provision permitting the Lessor, or other type of Lender, to transfer the Lease to another party by "Assignment". Most often; Lessors employ their own documents utilize assignment provisions to sell transactions to funding sources. Terms and conditions for assignment vary regarding recourse and other provisions such as the right, title and interest in the equipment financed.
Audited Financial Statements
An audit is a methodical and objective examination of accounts and items that support the financial statements of the company. It requires the CPA to study the association's accounting system and evaluate the risk of misstatement from error or fraud. An audit also requires the CPA to test the books and financial records to see if they are producing reliable financial data. Unlike a review, an audit requires the CPA to vouch numbers to source documents, confirm balances or other information, trace transactions through the records. An audit is more work and provides a greater degree of assurance that the financial statements are "fairly stated in accordance with generally accepted accounting principles."
Authorized Signature
A signature by a person authorized by a company to obligate the company on a long-term lease. An authorized signer will usually be substantiated by the Corporate Resolution which specifies who can sign and what his/her responsibilities may be.


 
 
 
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