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Leasing
101 > Leasing
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on the Balance Sheet > Electronic
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Savings > What is Leasing
> Frequently Asked
Questions
A lease is an agreement in which
you pay someone a fee to use their equipment, machinery, vehicle
or building. Most lease agreements typically last for
a specified amount of time.
Leases differ from other forms of financing
because the person using the asset, or the lessee, does not
own it. He or she is simply making a periodic payment or rental.
The owner of the asset, or the lessor, retains full ownership
of the equipment throughout the lease agreement.
There are many different types of leases. However,
for the sake of simplicity, the leases Signature Leasing provides
its customers fall into two basic categories-operating leases
and capital leases.
A true lease is a usage agreement. Ownership
if the equipment is not an ultimate objective of the lessee.
The lessee uses the equipment only for a specific period of
time. Once that term has been completed, the lessee can return
the asset, lease a new or alternative asset or negotiate a
continuing lease agreement.
A capital lease is used when the lessee's ultimate
intent is ownership of the leased equipment or machinery.
Four criteria are used to determine a capital lease. They
are automatic ownership transfer at lease end, a bargain purchase
option, a lease term equal to or greater than 75 percent of
the asset's economic life or the present value of the minimum
lease payment is equal to or greater than the asset's fair
market value. If any one of these criteria is used within
a lease agreement, the lease is considered a capital lease.
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