CLFP Equipment Finance Fundamentals 3

Question 1

What is 'recourse' vs. 'non-recourse' in the context of a lessor selling/assigning leases?

Accepted Answer

Recourse means the original lessor remains liable if the lessee defaults; non-recourse shifts all risk to the buyer

Answer

Recourse means the lessee can return the equipment anytime

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Non-recourse leases have no security interest

Answer

Recourse financing always carries a lower interest rate

Question 2

What is an 'equipment finance agreement' (EFA) and how does it differ from a lease?

Accepted Answer

An EFA is a loan secured by equipment where the borrower owns the asset from day one; a lease keeps title with the lessor

Answer

An EFA has no interest charges

Answer

An EFA is only available for real property

Answer

An EFA always has a balloon payment

Question 3

What is 'seasoning' in the context of a lease portfolio?

Accepted Answer

The age or payment history of leases in a portfolio, indicating how well lessees have performed over time

Answer

The process of adjusting residual values quarterly

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The documentation review process before funding

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Adding new equipment to an existing lease

Question 4

What is a 'synthetic lease' primarily designed to accomplish?

Accepted Answer

Provide off-balance-sheet treatment for the lessee under older accounting rules while qualifying as a loan for tax purposes

Answer

Eliminate all residual value risk for the lessor

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Finance intangible assets like patents

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Allow automatic equipment upgrades mid-term

Question 5

In equipment leasing, what is a 'step-up' payment structure?

Accepted Answer

Lease payments that increase at predetermined intervals over the lease term

Answer

Payments that decrease as equipment ages

Answer

A structure where down payment is increased to lower monthly rent

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A method for accelerating depreciation

Question 6

What is 'remarketing' in equipment leasing and why is it important to lessors?

Accepted Answer

The process of selling or re-leasing equipment returned at lease end to recover residual value

Answer

Marketing new lease products to existing customers

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The rebranding of used lease portfolios

Answer

Collecting past-due payments from lessees