Equipment Financing 101
An equipment finance agreement (EFA)
and/or lease is a binding legal document which you should fully understand before signing.
Here's a quick primer to get you started.
Parties to an EFA
: The party that is borrowing the money to purchase equipment. Also the party that has title to the equipment.Lender
: The party that is lending the money. They take a security interest in the equipment.
Parties to a Lease
: The party who has legal or tax title to the equipment, and grants the right to use the equipment and receive payment for that right.Lessee
: The party who is obligated to pay rentals and is entitled to use and possess the equipment.
: Usually monthly, but also quarterly, semi-annually or annually.Advance
: Payments due at the beginning of each period.Arrears
: Payments due at end of the period.Structured
: Step up/down, skipped, seasonal, etc.
Booked value of the equipment at the end of the term (balloon). Usually $1.00 or 10% of equipment cost, or expected fair market value.
End of Term Options:
- Return to lessor without further obligation.
- Purchase equipment at a fixed price determined by agreement (lease).
- Purchase equipment at Fair Market Value (FMV) as determined by appraisal.
- Renewal or extension of lease at rate determined by agreement.
With an EFA, the security interest in a piece of equipment is terminated at end of term. Apply Now