Finance Glossary
- Lease:
- A lease is a contract where one party (the "lessor") gives another (the "lessee") exclusive rights to use and possess its property or equipment for a specific period. The contract will require the lessee to make periodic payments (or "rentals") to the lessor for the use of the leased property.
- Operating Lease:
- The lessee can acquire the use of equipment for just a fraction of the useful life of the asset and delay ownership decisions for 2-5 years. At the end of the lease, the lessee decides whether to purchase, replace the equipment or keep leasing.
- Capital Lease:
- Similar to traditional bank financing, this type of lease helps businesses maximize both cash flow and cash conservation. Title of the equipment is transferred to the lessee at the end of term.
- Off-Balance Sheet Financing:
- Unlike the traditional methods of financing, operating lease obligations are not capitalized, thus potentially improving balance sheet ratios. You should discuss the potential advantages of using an operating lease with your accountant.
- Residual Value:
- The value of an asset at the conclusion of a lease.
- Sale and Leaseback:
- An arrangement where the lessor purchases equipment from the company owning and using it. The lessor then becomes the owner and leases it back to the original owner, who continues to use the equipment.
- Uniform Commercial Code (UCC):
- A set of standardized laws adopted by a majority of states, governing commercial transactions relating to the transfer of interests in property (except real property).
- Useful Life:
- The number of years that depreciable business equipment or property is expected to be in use. This may or may not correspond with the item's actual physical life or economic life.