Equipment finance, in plain English.

50 terms that show up on quotes, approvals and contracts, defined without the circular definitions. If a funder uses a word you have not seen before, it is probably here.

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Structures Pricing and payments Credit and underwriting Ownership, tax and title Process and vendors

Structures

The shapes a transaction can take, and what separates one from another.

Equipment Finance Agreement (EFA): A loan dressed as a single document. You own the equipment from day one, the lender files a lien, and you make fixed payments until it is paid off. There is no buyout because there is nothing to buy: title was always yours.Also: equipment finance contract
Equipment lease: The lessor owns the equipment and you pay for the use of it over a set term, ending in a buyout option. Payments are usually lower than a comparable EFA because you are not financing the full residual value.
$1 buyout: A lease that ends with you purchasing the equipment for one dollar. Economically it is a loan, and it is generally treated as one for tax purposes, which is why the payment is close to an EFA payment for the same asset.Also: dollar-out, capital lease
10% buyout: A lease ending in a purchase at ten percent of original cost. The payment sits below a $1 buyout because part of the price is deferred to the end. PUT means put option: the purchase is mandatory, not optional.Also: 10% PUT
Fair market value (FMV) lease: A lease ending with the option to buy at the equipment's market value, return it, or renew. It carries the lowest payment of the three structures because the lessor keeps meaningful residual risk. Often the right call for fast-obsolescing technology.Also: true lease, operating lease
Sale-leaseback: You sell equipment you own free and clear to a funder for cash, keep using it without interruption, and pay it back over a fixed term with a nominal buyout at the end. The equipment never physically moves.Also: leaseback
Capital reimbursement: A sale-leaseback on equipment purchased with cash very recently, typically within the last 90 to 180 days. It puts the cash back on the balance sheet after the fact. The original invoice and proof of payment are required.
TRAC lease: A lease structure available only on titled over-the-road vehicles. The parties agree a residual up front, and at the end the sale price is trued up against it, with the lessee taking the gain or the shortfall.Terminal Rental Adjustment Clause
Master lease agreement: A signed umbrella contract that lets a business add equipment later under short schedules rather than negotiating a full document each time. Common where a company buys repeatedly across a year and wants to skip the paperwork cycle.Also: master agreement
Municipal lease: A structure for government and qualifying non-profit entities in which interest is tax-exempt to the lender, lowering the rate. Payments are subject to annual appropriation, so the entity can walk away if a budget is not passed.Also: lease-purchase, tax-exempt lease

Pricing and payments

How the number on the quote is built, and the levers that move it.

Rate factor: A decimal multiplied by the equipment cost to produce the monthly payment. A .02500 factor on $100,000 is a $2,500 payment. It is not an interest rate, and comparing factors across different terms tells you nothing useful.Also: payment factor, lease rate factor
Term: The number of months over which the transaction is repaid. Equipment finance commonly runs 24 to 84 months. Lenders match term to the useful life of the asset, so a longer term is usually a function of the equipment, not your credit.
Advance payments: Payments collected at signing rather than at the end. First and last means two payments up front, reducing lender exposure. It is the most common form of down payment in equipment finance and is applied to the contract, not kept as a fee.Also: first and last
Down payment: Cash applied to the purchase price to reduce the amount financed. On stronger files it is often zero. On startups, thinner credit, or private-party purchases it is typically 10 to 20 percent, and it is the fastest lever for improving an approval.
Documentation fee: A one-time administrative fee charged at funding to cover contract preparation and lien filing. It usually runs a few hundred dollars on smaller transactions. It should appear in the approval, not surface for the first time at signing.Also: doc fee
Deferred payment: A structure delaying the first payment, commonly 60 to 90 days, so revenue from the equipment starts before the payment does. Interest generally continues to accrue during the deferral, so the deferred payments are not free.Also: 90-day deferral
Seasonal or skip payments: A schedule with reduced or zero payments in defined months, matched to a business whose revenue is seasonal. Common in agriculture, landscaping, and school-calendar businesses. The skipped amount is carried by the other months, not forgiven.
Step payment: A schedule that starts low and increases on a set date, used when equipment ramps to full production over time. It is the same total obligation arranged differently, and it should be justified by how the equipment actually generates revenue.
Prepayment penalty: A charge for retiring the balance before the end of term, often expressed as remaining payments discounted at a stated rate. Many equipment programs allow penalty-free payoff; challenged-credit programs frequently do not. Ask before signing, not after.Also: early payoff penalty
Interim rent: Charges covering the gap between funding and the start of the regular payment schedule. It is legitimate but easy to miss on a quote, and on a large transaction with a long delivery window it can be a meaningful number.Also: stub period

Credit and underwriting

What the desk actually looks at, and the vocabulary it uses.

Application-only: An approval decided on a short application without full financial statements, generally available on transactions up to around $500,000 for established businesses with acceptable credit. It is the fastest path, often same day, because there is nothing to spread.Also: app-only
Full financial package: Two years of business and personal tax returns, an interim profit and loss and balance sheet, a personal financial statement, and a business debt schedule. Required above the app-only ceiling, on thinner credit, and on most SBA files.Also: full financials
Time in business (TIB): How long the entity has been operating, measured from formation or the first tax return. Two years is the threshold at which most programs open up. Under two years, underwriting treats the file as a startup regardless of the owner's history.
Comparable credit: Evidence that the applicant has previously borrowed and repaid a similar dollar amount. A business asking for $200,000 with a clean $180,000 payoff behind it is a materially easier approval than the same business with no borrowing history.Also: comparable borrowing history
Personal guaranty (PG): A written promise by an individual owner to repay if the business does not. Standard on nearly all small-business equipment financing. It sits behind the business obligation, and it survives the closure of the business itself.
Corporate-only approval: An approval underwritten on the business alone, without a personal guaranty. It requires substantial time in business, real financial statements, and established business credit. Uncommon below several years of operating history and strong cash flow.Also: corp-only, PG-free
Corporate co-guarantor: A second, established company guaranteeing the obligation of a newer or weaker one, usually under common ownership. It is one of the most effective ways to get a thin file approved, because it supplies operating history the applicant does not have.Also: cross-corporate guaranty
Soft credit inquiry: A credit check that does not affect the score and is visible only to the person whose credit it is. Used to preview a file and prepare options. Nearly all initial equipment finance reviews should be soft; a hard pull comes later.Also: soft pull
Hard credit inquiry: A credit check recorded on the report that can reduce the score slightly and is visible to other lenders. Multiple hard inquiries in a short window signal shopping and can independently damage approval odds across a submission.Also: hard pull
Stipulations: Conditions attached to an approval that must be satisfied before funding: bank statements, proof of insurance, a signed invoice, a landlord waiver, a copy of the title. An approval with unmet stips is not yet money.Also: stips
PayNet and business bureaus: The commercial credit files lenders pull alongside personal credit. PayNet in particular records how a business has paid other equipment lenders, which is why prior equipment financing paid as agreed carries so much weight.Also: Equifax Small Business, Experian Business, D&B
Debt service coverage ratio (DSCR): Cash flow available to service debt divided by the debt payments themselves. A DSCR of 1.25 means the business generates $1.25 for every dollar of payment. Most bank and SBA programs want at least 1.15 to 1.25.

Ownership, tax and title

Who owns what, what gets filed, and what the IRS allows.

Section 179: A federal provision letting a business deduct the full purchase price of qualifying equipment in the year it is placed in service, rather than depreciating it over years. Financed equipment earns the same full deduction as a cash purchase.
Bonus depreciation: A deduction covering remaining basis after Section 179, at 100 percent for 2026, with no dollar cap. Unlike Section 179 it can create or increase a net operating loss, which is why the two are commonly used together.
Placed in service: The date equipment is delivered, installed where required, and ready for its intended use. It governs which tax year the deduction falls in. Signed paperwork on a machine that has not shipped does not qualify for that year.
UCC-1 financing statement: A public notice filed with the secretary of state establishing a lender's security interest in specific collateral. It is how priority is determined between lenders, and a blanket UCC from an earlier funder can block a later equipment deal.Also: UCC filing, lien
Blanket lien: A UCC filing covering all assets of a business rather than one identified item. Common with working capital funders and bank lines, and it frequently has to be subordinated or released before an equipment lender will take a position.
Titled equipment: Assets with a state-issued certificate of title, chiefly over-the-road vehicles and trailers. The lienholder is recorded on the title itself rather than only by UCC filing, which adds a step and some time to funding.
Residual value: The equipment's expected worth at the end of the term. It sets the FMV buyout and determines how much of the price the payment has to cover. Higher residuals mean lower payments and more risk sitting with the lessor.
Orderly liquidation value (OLV): What equipment would fetch in a reasonably timed private sale, as distinct from a forced auction. It is the figure most leaseback advances are sized against, and it is usually well below both replacement cost and what the owner paid.
Soft costs: Non-hardware components of a purchase: freight, installation, training, software, warranties, and taxes. Many lenders cap soft costs at a percentage of the transaction, which is why a quote heavy on installation can be harder to finance in full.
GVWR: The maximum loaded weight a vehicle is rated for. It determines Section 179 treatment: vehicles over 14,000 lbs generally qualify for the full deduction, 6,000 to 14,000 lbs carry a separate cap, and under 6,000 lbs is limited further still.Gross Vehicle Weight Rating

Process and vendors

How a deal moves, and how equipment sellers plug into it.

Vendor program: A financing arrangement set up with an equipment seller so buyers can finance at the moment of the quote. Typically includes a co-branded application page, payment tools for reps, and a dedicated contact. Normally free to the vendor.Also: point-of-sale financing, dealer program
Private-party purchase: Buying equipment from another business or individual rather than a dealer. Financeable, but it adds steps: an inspection or appraisal, a bill of sale, lien search on the seller, and funds released to the seller rather than a dealer account.
Progress payments: Funds released to a manufacturer in stages during a long build, before the equipment exists. Used on custom machinery with lead times measured in months. It carries more lender risk, so it requires a stronger file.Also: prefunding, progressive funding
Invoice and quote: The seller's document identifying equipment, price, and terms. Underwriting funds against it, so the serial number, the buyer's exact legal entity name, and the final price all need to be right before documents are drawn.Also: proforma
Proof of insurance: Evidence that the financed equipment is insured with the lender named as loss payee and additional insured. It is the stipulation that most often delays funding by a day or two, because it depends on a third party.Also: certificate of insurance, COI
Funding: The point at which money is released to the seller and the term begins. It follows approval, document execution, and satisfied stipulations. An approval is not funding, and the gap between them is where most deals actually stall.
Buyout: The amount required to take ownership at the end of a lease: one dollar, ten percent of original cost, or fair market value. It should be stated in the contract at signing, never left open to determination later.Also: purchase option, end of term
Broker and direct lender: A broker places transactions with third-party funding sources; a direct lender approves and funds on its own paper. Many commercial finance companies do both, which lets a single submission reach bank pricing or a faster in-house program.

Missing something? If a term came up on a quote and it is not here, email support@fivewestfinancial.com and we will define it and add it. Requirements by program are on the qualification guidelines page, and the products page covers which structure is used when.

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