A refundable security deposit is an amount of money requested of the lessee by the lessor to strengthen a deal that may be too weak to approve, or outside of the lessor’s credit window. A security deposit makes a lease transaction safer for the lessor. If the lessee makes their payments as agreed, then the security deposit is refunded back to the lessee at the end of the lease.
Remarketing is the process in which a lessor markets and sells equipment that comes back to them at the end of a lease where the lessee does not exercise their option to purchase the equipment. There are remarketing companies that assist lessors in selling equipment that comes back to them at the end of leases. Lessors also remarket equipment that comes back to them by order of default as well.
Residual value is the value of leased equipment at the end of the lease term.
A sale-leaseback is a lease where a business (lessee borrows money against equipment they already own or just recently purchased from a funding source (lessor). The business sells the equipment to a lessor and buys it back over the term of a lease by making payments. This is common when a company has to move fast on some equipment at an auction or from a private party sale. The company will buy the equipment and then contact a leasing company lease/finance the equipment they just bought to get their cash back. Funding sources are pick about sale-leasebacks. Some funding sources will not touch them while others will if they make sense.
A sole proprietorship is a business owned by a single individual. A sole proprietor has unlimited liability for business debt and obligations, but does not have to pay corporate income tax.
A step down lease is a customized payment plan where the lease payments decrease over the term of the lease.
A step up lease is a customized payment plan where the lease payments increase over the term of the lease.
A Subchapter S Corporation is a general corporation that has elected a special tax status with the IRS after the corporation has been formed. Subchapter S corporations are most appropriate for small business owners and entrepreneurs who prefer to be taxed as if they were still sole proprietors or partners. For many small businesses, the S Corporation offers the best of both worlds, combining the tax advantages of a sole proprietorship or partnership with the limited liability and enduring life of a corporate structure.
The term of the lease is the number of payments or years. The most common terms are 2-5 years (24 to 60 months). Sometimes when people in the business speak about terms, they are also talking about the dollar amount of the payment, interest rate and “end-of-lease” purchase option.