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Glossary

ACTIVE AGREEMENT

An agreement commences when it has been accepted by a lessor assuming that the equipment has been delivered and installed, an invoice has been raised by the vendor and the lessor has paid the vendor. The agreement is then considered to be active or live.

ACTIVATION

The process by which an agreement is made active. The lessor has received all the correct paperwork from both the customer and the vendor and the vendor’s invoice has been paid.

ADD-ON

The addition of new equipment to equipment already on an agreement with the lessor. A new agreement with the lessor will be established for the additional equipment.

ADVANCE RENTALS

Payments made by the lessee at the inception of a leasing transaction.

A P R

Annual Percentage Rate. The effective rate take into account the compounding of interest and other fees or charges. The true cost of borrowing.

ASSIGNEE

A person, company or entity to whom the benefits under an agreement may be

transferred

ASSIGNMENT

The process of transferring the benefits under an agreement.

ASSIGNOR

A person, company or entity who makes the transfer of benefits under an agreement.

BACK TO BACK LEASE

Equipment which is leased to an intermediate lessor and then sub-leased to the actual user.

BALLOON RENTAL

Periodic rentals are paid over the lease term with a larger rental known as a "Balloon Rental" or "Balloon Payment" paid

at the end. The effect of this larger rental at the end is to reduce the value of the periodic rentals paid during the lease term and can aid cashflow for the lessee.

BUY BACK

An agreement allowing the transfer of title in the equipment on termination of a lease agreement

CAPITAL ALLOWANCES

These are tax allowances which the owner of equipment is entitled to claim against their taxable income. In the case of a lease agreement these allowances are claimed by the lessor. Where the agreement is a lease purchase, hire purchase, credit sale or commercial loan the end user customer is able to claim the allowances.

CASHFLOW

The term that refers to cash coming in to and out of a business during an accounting period. Typical examples of cash in-flow would be : cash from operations, sales of fixed assets, share issues and borrowings. Typical examples of cash out-flow would be dividends, taxation, loan payments and capital expenditure.

CERTIFICATE OF ACCEPTANCE

A document signed by the lessee acknowledging that the equipment to be leased has been delivered and is acceptable.

CONDITIONAL ACCEPTANCE

Confirmation that a proposal has been accepted for credit purposes subject to one or more conditions being met.

CONDITIONAL SALE

An agreement under which title to the goods passes to the customer upon fulfilment of the standard terms and conditions of the agreement.

COTERMINOUS

Where two or more agreements are processed at different times but where the end-user customer requires the agreements to terminate at the same time.

CREDIT LINE

A pre-agreed financial limit under which the end-user customer may enter into one or more agreements for the on-going acquisition of equipment up to that limit. The limit will be periodically reviewed and may adjusted either way to accommodate the customer’s on-going requirements. The benefit in establishing a credit line is to minimise the time

and paperwork involved in underwriting new agreements as each proposal is submitted and provides the customer with greater budgetary control.

CREDIT SALE

An agreement most commonly used for the funding of intangibles. A typical example of this would be for software only financing. The credit sale agreement is only available to customers who are not regulated by the Consumer Credit Act 1974.

DEFAULT

A customer who is in violation of any of the terms and conditions of the agreement between themselves and the lessor, including, but no limited to, arrears.

DEFERRAL

The term used to describe an agreement where the first payment from the customer is deferred for an agreed period of time. A deferral is normally for a period of between one and six months. A charge will be levied on the periodic

payments under the agreement to compensate the lessor for the deferral. A deferral will only be offered in exceptional circumstances.

DELIVERY CONFIRMATION FORM

A document signed by the lessee acknowledging that the equipment to be leased has been delivered and is acceptable.

DEPRECIATION

For accounting purposes to represent the consumption of an asset over its useful life. Under a finance lease, the customer must account for the asset as a capital item, following the accounting rules for fixed assets. The systematic writing off of

an asset’s value (by reducing a company’s taxable income) reflects its wearing out through use and the passage of time. Under an operating lease, only the lessee charges rentals against profits as they fall due.

DUE DATE

The date of the month when a customer’s periodic payment will be collected under a direct debit instruction or standing order mandate or when a cheque in respect of an outstanding invoice or payment under a BACS transfer arrangement is to be paid.

ECONOMIC LIFE

The estimated remaining period during which the equipment is expected to be economically usable by one or more users

ENTITY

A proprietorship, partnership, limited company or non-profit making organisation

ESTIMATED USEFUL LIFE

The period during which an asset is expected to be useful in trade or business. The estimated useful life is used not only

for the purposes of calculating the primary period of a lease but also to determine the method of depreciation for a capitalised leased asset.

EXPOSURE

The measured amount of risk a lessor has with a lessee. This is often the aggregate of outstanding rentals.

FAIR MARKET VALUE

The appraised value of the equipment at termination or at the end of the agreement term.

FINANCE & LEASING ASSOCIATION

The representative association for lessors in the United Kingdom.

FINANCIAL STATEMENT

A periodic report, normally produced annually, detailing a company’s position and its progress. Usually composed of a balance sheet, profit and loss account and source and application of fund statement.

FIXED TERM RENTAL AGREEMENT

There can be no secondary rental period on this sort of agreement and the equipment has to be returned at the end of the agreement.

GEARING

A key ratio for assessing a company’s stability and creditworthiness. Gearing is the percentage of the company’s finance that has been borrowed. Lending to a highly geared company involves a higher degree of risk.

GUARANTEE

A written agreement that confirms that a third party, which may be an individual or a company, will guarantee the

customer’s obligations under the finance agreement if the customer is in breach of the terms and conditions of the finance agreement. The provision of an acceptable guarantor may help ensure a credit approval on an otherwise marginal proposal.

INDEMNITY

An agreement whereby a lessee or other person holds the lessor or other person blameless against any cost or loss arising by reason of the occurrence of certain events or circumstances, for example, the non-achievement of the desired tax

treatment of the transaction.

INITIAL PERIOD

The finance agreement initial period begins when the transaction is processed and payment to the vendor has been effected. The initial period will continue until the customer has made all the payments and fulfilled all specified

obligations under the terms and conditions of the agreement.

LANDLORD’S WAIVER

A document which protects a lessor’s equipment from being considered part of a property and thus irremovable. This document primarily protect the lessor’s rights to the lease equipment when permanently installed in a lessee’s or

landlord’s building.

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 TERM

The contracted minimum period of the agreement including any secondary period.

LESSEE

The user of the equipment being leased.

LESSOR

The party to a lease agreement who has legal title to the equipment and grants the lessee the right to use the equipment

for the lease term and is entitled to receive the rental payments.

L I B O R

London Inter-Bank Offer Rate is the rate of interest most commonly used as a reference point in calculating floating rate interest payments. It is calculated by taking the average of the rates of interest which an agreed selection of major

London banks are charging for lending money to each other.

LIEN

The legal right to keep another person’s property until a debt owed in respect of the property, is paid.

LIVE AGREEMENT

An agreement commences when it has been accepted by a lessor assuming that the equipment has been delivered and installed, an invoice has been raised by the vendor and the lessor has paid the vendor. The agreement is then considered

to be active or live.

MASTER AGREEMENT

A single agreement that allows the customer to sign multiple equipment schedules over a period of time. Each new schedule is governed by the terms and conditions of the master agreement, until the line of credit is fully utilised or the facility expires.

MINIMUM PERIOD

The finance agreement minimum period begins when the transaction is processed and payment to the vendor has been effected. The minimum period will continue until the customer has made all the payments and fulfilled all specified obligations under the terms and conditions of the agreement.

PAYMENT IN ADVANCE

Periodic payments are due at the beginning of each payment period.

PAYMENT IN ARREARS

Periodic payments are due at the end of each payment period.

PAYMENT PROFILE

The frequency and number or periodic payments.

P V

Stand for Present Value. It is the value today of a future payment or stream of payments which have been discounted at

the appropriate rate.

PRIMARY PERIOD

The finance agreement primary period begins when the transaction is processed and payment to the vendor has been effected. The primary period will continue until the customer has made all the payments and fulfilled all specified obligations under the terms and conditions of the agreement.

PROPOSAL

The relevant information about a potential customer and the equipment to be financed.

PROPOSAL ACCEPTANCE

A confirmation, normally issued by facsimile or e-mail, confirming the basis under which a potential customer has been approved for credit purposes.

PURCHASE PLAN

An agreement where the customer wishes to own the equipment at the end of the agreement term.

RECEIVABLES

The future rentals, including any arrears, owed to a lessor by the lessee.

RENTAL

The sum paid by a lessee at regular specified intervals during the period of the agreement in return for use of the rented equipment.

RENTAL AGREEMENT

A contract between the lessor and a customer for the hire of a specific asset selected by the customer and supplied by a vendor. The customer has possession and use of the asset in return for payment of specified rentals over the agreement term.

RENTAL HOLIDAY

The normal use of the term rental holiday is an agreement whereby no rentals or scheduled ‘holidays’ usually occur at the beginning or end of the lease. For example in a five year agreement payable quarterly the customer would make one payment followed by nineteen other regular payments thereafter. With a rental holiday the first payment is skipped. Obviously the rentals are adjusted by the lessor to ensure the correct rate of return. This should not be confused with a deferral.

RENTAL PROFILE

The frequency and number or periodic payments.

RESIDUAL VALUE

The estimated value of equipment at the end of the lease term. In the case of a finance lease residual values are small in relation to the value of the lease. Under an operating lease, they are much larger. Lessors attempt to recover the residual

value through the sale of the equipment or the collection of renewal rentals from the lessee.

SALES AID LEASING

A facility offered to manufacturers and suppliers (vendors) of equipment that enable them to make it easier for their customers to acquire their goods. The vendor is usually able to negotiate a sales aid package which gives greater

benefits in terms of flexibility, pricing and availability than an individual customer could negotiate on their own behalf.

The facility is also referred to as a vendor programme.

SCHEDULE OF EQUIPMENT

A document signed by the lessee detailing all the equipment which forms part of a finance agreement between the customer and the lessor.

SECONDARY PERIOD

At the end of the minimum period, the lease may be extended to allow the lessee continued use of the equipment. The rental for the secondary period will be the same as during the minimum period unless a special reduced rate rental has been agreed. If the equipment is returned at the end of the agreement term then no secondary rentals are payable.

SETTLEMENT FIGURE

An amount required to discharge an uncompleted lease. In most cases a reduction will be applied to the balance of outstanding payments by way of a percentage rebate of interest in order to arrive at the settlement figure. This amount

may be included in a new agreement for new equipment and thereby avoid the need to raise a capital sum to discharge

an existing agreement.

START DATE

The date on which the lessor signs its acceptance of the agreement, the vendor is paid and the agreement term commences.

STEP RENTAL

A feature of a lease that contains a payment stream that can increase or decrease in amount over the period of the agreement.

TAX VARIATION CLAUSE

A lease agreement may contain a clause allowing the lessor to adjust the value of the periodic payments in the event that changes to taxation alter the lessor’s after tax return on its investment.

TERMINATION PAYMENTS

Amounts due from a lessee to a lessor at the end of a lease. Such payments usually arise where an agreement is

terminated at the lessee’s request or where the lessee is in default.

UPGRADE

A method of adding to, changing or replacing equipment on a lease agreement.

USEFUL LIFE

The period of time during which an asset will have economic value and be usable.

WRITE-OFF

The removal of an active agreement from the lessor’s portfolio as a result of default by the lessee.

WRITING DOWN ALLOWANCE

The amount of the asset’s cost which the owner may charge each year against its taxable income.

YIELD

Term used to describe the overall return from an agreement which incorporates the cost of funds and the margin required.

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