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Leasing FAQs

Leasing Terminology

The lessee’s acknowledgement that the equipment to be leased has been received and is in satisfactory condition. For the lessee’s protection, funds will not be released to your vendor until First South Leasing has received your written “delivery and acceptance” form and been able to confirm your acceptance by telephone.

Advance Lease Payments
Most leases call for a specific number of lease payments in advance. 1-2 payments is a typical requirement. The total number of payments during the lease are reduced by the advance payments.
Application Only Program
A lease program that uses a streamlined credit application and review procedure that only requires the submission of a single-page application with basic information about the business’ principals, bank, and trade references. This type of program does not require financial statements, tax returns, business plans, or other more detailed disclosures.

Deferred Payment Lease
The initial lease payments are deferred 60, 90 or 120 days to accommodate cash flow and capital budgeting requirements.

End of Lease Options
Options for what happens to the equipment after all payments have been made. Typical options are the $1 Buyout, Fair Market Value (FMV), Purchase Upon Termination (PUT), Equipment Return, and Continued Leasing.

Equipment Schedule
A document that describes in detail the equipment being leased. It may also state the lease term, commencement date, repayment schedule and location of the equipment.
Fair Market Value (FMV) Lease
Provides greater flexibility and lower monthly payments than the Finance Lease format. Key benefits include a number pre-set end-of-lease options:
  • Return the equipment with no further obligation, or
  • Purchase the equipment for its fair market value, or
  • Re-lease the equipment for its fair market value, or
  • Continue leasing on a month-to-month basis
Finance Lease
($1 Buyout, Capital Lease or Bargain Purchase Lease)
These four terms describe leases that combine lower, fixed monthly payments with the guaranteed-in-advance right to purchase the equipment at the conclusion of the lease term at a pre-determined price. These leases generally do not qualify as deductible operating expenses and must be amortized and depreciated. There are, however, some significant other tax benefits under I.R.S. section 179, which may be available to your business.

Because leased equipment is technically owned by the lessor until the satisfactory conclusion of the lease term, proof of all risk and casualty insurance will be required, showing the lessor as a “named insured.”

A contract in which one party conveys the use of an asset to another party for a specified period of time at a predetermined payment.
The user of the equipment being leased, and is subsequently responsible for the payment of rental payments.
The party to a lease agreement who has legal title to the equipment, grants the lessee the right to use the equipment for the lease term, and is entitled to the rental payments.
Master Lease
One lease (and one credit approval) for several pieces of equipment purchased at different times from one or more vendors.
Off-Balance Sheet Financing
Financing that does not add debt to a company’s balance sheet.
Operating Lease
Any lease that is not a capital lease. These are generally used to acquire off-balance sheet financing, and whereby the Lessee anticipates returning the equipment to the Lessor at the end of the term.
Progress Payments
A special kind of lease for vendors who require up to 100% of the selling price prior to delivery.
Purchase Option
An option to purchase the leased equipment at the end of the lease term at its then fair market value. This provision is a primary determinant in differentiating a rental plan (where lease payments are fully deductible for tax purposes), and a financing plan.
PUT Option
(Purchase Upon Termination).
A specialized option, that can be offered in conjunction with an FMV lease that requires a purchase of the equipment at the conclusion of the lease at a fixed-in-advance percentage of the original purchase price.
Rental Rate Factor
The multiplier used to calculate periodic rental payments due the lessor for the use of asset(s).

Generally applies to the funding source (lessor’s) right to require the manufacture or distributor take back and/or take responsibility for re-marketing equipment that is not paid for as a result of default by their customer(s), the lessee.
Residual Value
The remaining (market) value of the equipment at the end of the lease term
Sale Lease Back
A technique for re-capturing cash previously expended on equipment by selling that equipment to First South Leasing who in turn leases that same equipment back to the company over a period of 12 to 60 months.
Seasonally Adjusted Lease Payments
Lease payments that are “adjusted” to accommodate a business’ cash flow seasonality. Payments are set lower for the business’ “slower” or “off-season” months and set slightly higher during months of the business’ traditionally stronger cash flow.
Security Deposit
An amount paid at the beginning of the lease that is held by the lessor until the satisfactory payment of all amounts due under the lease terms, at which time the security deposit amount is returned to the lessee.

Skip Payment Leases
The lessee selects a series of months in which no-payments will be due.
Step Payment Lease
Lease payments are stepped up (or down) to accommodate the lessee’s anticipated cash flow pattern as the company begins to see its return from the acquired equipment.
TRAC Lease
Many of the benefits of a true lease, but designed specifically for over-the-road vehicles like trucks, tractors & trailers. Special provisions of the tax code allow for pre-determined end-of-lease valuations (unlike a true or FMV lease). Generally the most aggressive pricing for specified equipment. May include FMV or continued rental options.
True Lease (Tax or Operating Lease
A type of transaction that qualifies as a lease under the Internal Revenue Code. It allows the lessor to claim ownership and the lessee to claim rental payments as a tax deductions.

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