Body of Knowledge

HISTORY OF LEASING

• Industry Standards and ‘Code of Ethics’
• Ancient applications of leasing
• Recognition of leasing under English Common Law
• Beginning of leasing in the United States
• Early U.S. leasing, leasing in the transportation industry
• U.S. leasing by “captives”
• WW II era leasing activity
• General trends in the development of modern leasing
• Bank involvement in leasing
• Development of accounting standards for leasing
• The evolution and content of tax rules governing leasing
• Government involvement in the development and growth of leasing
• Use of leasing in today’s economy

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CLASSIFICATION AND TERMINOLOGY IN LEASING

• Leasing defined
• Market divisions within the leasing industry
• Approaches/views towards a lease transaction
• Accounting view
• Tax view
• Legal view
• Types of leases
• Single investor
• Captive
• Leveraged
• The broker’s role in the lease transaction
• Why leasing exists – reasons for its viability in the economy
• Basic elements of a lease transaction
• Basis for a tax view of a lease
• IRS Revenue Ruling 55-540
• IRS Revenue Procedure 75-21
• Basis for an accounting view of a lease transaction
• FASB 13
• Basis for a legal view of a lease transaction
• Basic definitions
• Safe Harbor Lease
• Sale-Leaseback
• Section 38 property
• Recourse vs. non-recourse
• “At risk” rules
• Bundled lease
• Close-end lease
• Collateral
• Gross lease
• Full pay-out lease
• Guidelines lease
• Net lease
• Money over money transaction
• Open-end lease

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MARKETING

• Potential market for leasing in today’s economy
• Development of a marketing plan
• Elements of a marketing plan
• Choosing business type
• Choosing industry type
• Choosing equipment type
• Choosing a geographic area
• Defining the customer
• Identifying sources of funds
• Identifying available programs
• Limitations
• Product availability
• Marketing strategies

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SALES

• Definition of sales effort
• Purpose of sales within the lease organization
• Elements of the sales process
• Introduction
• Body
• Close
• Overcoming objections
• Pre-emptive principle
• Using questions to determine the real objection
• Closing the deal
• Closing techniques
• The sales proposal
• Defining the contents of the sales proposal
• The salesman’s main tool – knowledge
• Financial statements
• Credit requirements and criteria
• Credit reporting and credit report data
• Tax returns
• Business structure and operation
• Lease pricing
• Lease structuring

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LESSOR-VENDOR RELATIONSHIPS

• Vendor defined
• The relationship of the vendor to a lessor
• The role of the vendor in a leasing transaction
• Traits to look for in a vendor
• Purpose of vendor programs
• Elements of a vendor program
• Elements of a vendor transaction
• Potential problems with a vendor transaction
• Potential vendor frauds
• The role of the vendor invoice in the transaction
• Money and the vendor

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LEASE PRICING

• Time use of money concept
• Cash flow diagrams
• Structuring of a payment
• Principal plus interest
• Amortizing payment
• Basic elements of a lease transaction
• Term
• Number of payments
• Number of advance payments
• Equipment cost
• Indirect costs
• Lease payment
• Residual value
• Security Deposit
• Lessor’s yield
• Other fees/costs
• Understanding the transaction
• Application of the cash flow diagram to the lease transaction
• Mathematical computation for a lease transaction
• Solving for any unknown element in the transaction
• Determining the rate factor for a lease transaction
• Computing unusual payment structures
• Skip payments
• Step payments
• Hi-low payments
• Seasonal payments
• Definitions of terms
• Internal rate of return
• Stream rate
• Basis points
• Points

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LEASE VS. BUY DECISION MAKING

• Selling the lease vs. buy decision
• Knowledge of customer
• Motivations
• Concerns
• Intended use of equipment
• Personality
• Company decision making process
• Financial situation
• Tax situation
• Knowledge of Product (leasing)
• Rates, yields, time use of money
• Financial statement impacts of leasing
• Tax impacts of leasing
• Convenience considerations
• Other implication of using leasing
• Options for acquisition/use of equipment by lessee
• Elements of the lease vs. buy decision
• Equipment considerations
• Budget and decision making
• Conveniences
• Financial statement impacts
• Tax consequences
• Cash flow issues
• Costs

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CREDIT PROCESS AND FINANCIAL STATEMENTS

• Role and purpose of credit
• Assessment of credit risk
• Lessor credit information—what is required
• Definition of legal entities
• Sole proprietorship
• Partnership
• Limited partnership
• Joint venture
• Corporation
• Sub “S” corporation
• “C” corporation
• Non-profit corporation
• Professional corporation
• Limited Liability Corporation
• Association
• Trust
• Municipality
• Federal Government
• Elements of small-ticket lease credit decision making
• Elements of mid-ticket lease credit decision making
• Elements of large-ticket lease credit decision making
• Credit scoring
• Credit enhancements
• Yield
• Deposits
• Advance Payments
• Structuring of the lease
• Term adjustment
• Personal guarantees
• Other guarantees
• Additional security
• Contract terms
• Credit life/health
• Vendor guarantees
• Fees and charges
• Cancellation/non-renewal penalties
• Bundled services
• Vendor discounts
• Co-lessees
• Structuring the lease transaction
• Effects of security deposits and other advance payments on a lease transaction
• Elements of a financial statement
• Balance Sheet
• Statement of Operations (Income Statement)
• Statement of Changes in Equity
• Statement of Cash Flows
• Notes to the Financial Statement
• Elements of a Balance Sheet
• Elements of a Statement of Operations
• Elements of a Statement of Changes in Equity
• Elements of a Statement of Cash Flows
• Elements of the Notes to a Financial Statement
• Types and quality of financial statements
• Internal statements
• CPA prepared statements
• Compiles statements
• Reviewed statements
• Audited statements
• The audit opinion
• Analysis of financial statement information
• Financial statement ratios
• Purpose of ratios
• 12 Operating ratios
• Quick ratio
• Current ratio
• Debt to equity ratio
• Return on equity ratio
• Net sales to inventory ratio
• Receivables turnover ratio
• Payables turnover ratio
• Net sales to working capital
• Profit on sales
• Inventory turnover
• Operating expense ratio
• Accounts receivable turn day ratio
• Importance of understanding financial statements
• Sales process
• Credit process
• Role of personal financial statements in the credit process
• When to obtain
• When relevant to the credit decision

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LEASING LAW

• Basis for U.S. leasing law
• Statute of Frauds
• Bundle of rights concept
• Legal definition of a lease
• Rights associated with a lease
• Warranties
• Express warranties
• Implied warranties
• Article 2-A of the UCC code
• Requirements to comply
• Effects of meeting requirements
• Exclusion of warranties under Article 2-A
• Exclusion of warranties under contract terms
• Definitions
• After acquired title
• Novation
• “Jointly and severally liable”
• Terminal Rental Adjustment Clause (TRAC)
• Bankruptcy
• Types of bankruptcy
• Chapter 7
• Chapter 9
• Chapter 11
• Chapter 12
• Chapter 13
• Payment priorities in bankruptcy
• Bankruptcy terminology
• Date of filing the petition
• Automatic Stay
• Liquidation
• Proof of claim
• Bar date
• Relief from stay
• Preferences
• Adequate protection
• Plan
• Cram Down
• Confirmation
• Executory contract
• Secured creditor
• Deficiency
• Re-affirmation
• Treatment of a lease in bankruptcy
• Chapter 7
• Chapter 11
• True lease treatment
• Secured transaction treatment
• Unsecured transaction treatment
• Requirements for registration as a foreign corporations
• Definition of “doing business”
• Effects of non-registration
• On lessor
• On lessee
• Requirements to meet tax obligations regardless of registration
• Sales and use taxes
• Property taxes
• Income taxes
• Venue of tax liability

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LEASE DOCUMENTATION

• Parties to a contract
• Elements of the lease documentation file
• Lease documents
• Lease contract
• Schedules and exhibits
• Delivery and Acceptance
• Guarantees
• Corporate resolutions
• Real estate waivers
• Fixture filings
• UCC filings
• Additional collateral agreements
• Purchase order
• Cross default agreement
• Invoice
• Funding/advance funding agreement
• Purchase options
• Other miscellaneous documents
• Forms of contract
• Standard lease agreement
• Master lease agreement
• Plain language agreement
• Elements & provisions of a lease contract
• Identification of the parties
• Identification of the vendor/supplier
• Equipment location
• Terms
• Purpose/intent of agreement
• Acceptance of equipment by lessee
• Disclaimer of warranties
• Article 2-A provisions
• Assignment
• Rental commencement and other payments
• Non-cancellation provisions
• Disclaimer of agency
• Lessee/Lessor signatures
• Choice of law/venue
• Security deposits
• Limited amendments, power of attorney
• Provisions for location and use of equipment
• Ownership provisions
• Renewal provisions
• Agreements for insurance, provisions for loss and/or damage
• Insurance requirements
• Responsibility for liens and tax liability regarding equipment
• Lessee indemnification of lessor
• Lessor assignment, waiver of defense clause
• Service charges, late fees, interest
• “Time of essence” provisions
• Default provisions
• Cross default clause
• Remedies to default
• Provisions regarding multiple lessees
• Agreement regarding enforcement expense
• Modifications, changes, severability
• Attachments, schedules & exhibits
• Equipment lease guarantee
• Purpose of the guarantee
• Use in the lease transaction
• Elements of the equipment lease guarantee
• Parties to the guarantee
• Guaranateeable interest
• The guarantee made by the guarantor
• Guarantor primarily responsible under the contract
• Waiver of guarantor’s rights
• Deliver & Acceptance
• Purpose of the Delivery & Acceptance
• Use of the Delivery & Acceptance
• Elements of the Delivery & Acceptance
• Acceptance and representations regarding equipment
• Instructions to pay vendor
• Unconditional nature of acceptance
• Corporate resolution
• Purpose of the Corporate Resolution
• Use of the Corporate Resolution
• Resolution to lease
• Resolution to guarantee lease
• Elements of the Corporate Resolution
• Authority of corporation to enter into lease and/or guarantee
• Identification of authorized signers for the corporation
• Fixture Filings
• Purpose of a Fixture Filing
• Use of the Fixture Filing
• Form used for Fixture Filings
• Filing requirements
• Protections offered from a fixture filing
• Issues not protected
• Real Estate Waivers
• Purpose of the Real Estate Waiver
• Use of the Real Estate Waiver
• Form of the Real Estate Waiver
• Landlord Waiver
• Lender’s Waiver
• Filing requirements for a Real Estate Waiver
• Elements of the Real Estate Waiver
• Identification of the parties
• Legal description of the property
• Statement of consideration
• Intent and agreement on the nature of the “fixture” covered by the Real Estate Waiver
• Waiver of certain rights by Landlord/Lender
• Permission to reclaim “fixture” upon default by Lessee
• Signature acknowledged by a Notary Public
• UCC Filings
• Purpose of UCC filings in the lease transaction
• Form of the UCC filing
• UCC-1
• UCC-2
• UCC-3
• Filing requirements
• Filing location
• Timeliness
• Fees
• Additional Collateral Agreements
• Parties to the agreement
• Purpose of an additional collateral agreement
• Use of the additional collateral agreement
• Form for the agreement
• Requirement to perfect interest
• Real Estate as Additional Collateral
• Forms of security
• Deed of Trust
• Mortgage
• Assignment of interest
• Requirements for filing, perfecting interest
• Anti Deficiency laws
• Invoice
• Parties to the invoice
• Purpose of the invoice
• Content of the invoice
• Use of the invoice
• Form of the invoice
• Purchase Order
• Parties to the purchase order
• Purpose of the purchase order
• Content of the purchase order
• Representations required by vendor
• Disclaimers and conditions set by lessor
• Use of the purchase order
• Form of the purchase order
• Funding/advance funding agreement
• Parties to the agreement
• Purpose of the agreement
• Use of the agreement
• Contents of the agreement
• Potential dangers of use
• Purchase/renewal options
• Parties to the option
• Types of options
• Purchase option
• Call option
• Put option
• Renewal option
• Use of the option
• Form of the option
• Potential effects of the option in the determination of the nature of the agreement
• True lease treatment
• Treatment as secured transaction
• Lessor liability issues
• Potential liabilities of lessor
• As owner of the equipment
• As financier of equipment
• Liability protections for lessor
• Contractual provisions
• Insurance
• Business practices
• The issue of Agency
• Equipment in inventory/repossessed equipment
• Lessor’s status in sale or lease
• Sale to end-user
• Wholesale disposal
• Lessor liabilities
• Possible lessor protections
• Contractual
• Insurance

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COLLECTIONS

• Purpose of collections
• Characteristics of a good collector
• Signs of delinquency in a lease
• Typical reasons for delinquency
• Overlooked due date
• Lease terms misunderstood
• Equipment problems
• Payment priorities
• Seasonal slow downs
• Catastrophic occurrences
• Internal accounting issues
• Personal financial difficulties
• Chronic slow pay
• Failing business
• Fraud
• Types of fraud
• Warning signs of fraud
• Fraud prevention techniques
• Bankruptcy
• Progression of a delinquency and lessor actions
• Initial contact
• Second and subsequent contacts
• Formal collections
• Repossession of equipment
• Voluntary return by lessee
• Ex Parte
• Replevin action
• Claim and delivery
• Litigation
• Venue issues
• Obtaining a judgement
• Registration of foreign judgement
• Action for fraud
• Litigation in bankruptcy
• Fraud action
• Course of action on a stated “no-pay”
• Written records
• Importance
• Use
• Court evidence
• History of account
• Management tool
• Possible collection remedies
• Partial payments
• Extensions
• Changes in due dates
• Recovery agreements
• Forbearance program
• Modifications
• Transfer and assumption
• Other reasonable remedies
• Alternative ways to make lessee contact
• Types of repossession
• Voluntary return by lessee
• Court orders and enforced repossession
• Self-help repossession
• Potential dangers to lessor
• Commercially reasonable sale
• Elements of a commercially reasonable sale
• Notice
• Timing issues
• Advertisement
• Who may purchase at sale
• Application of sale proceeds
• Lessor rights to recover deficiency

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LEASE COMPANY MANAGEMENT

• Structure/organization of a lease company
• Key management
• Role of key management
• Management Issues
• Administration
• Organizational structure
• Human resource issues
• Efficiency
• Financial Management
• Budgeting
• Cash flow
• Financial Statements
• Profitability
• Cost of Capital
• Reserves
• Managing Cash flows
• Credit Decision Making
• Impact on debt/financing
• Establishing company policy and criteria
• Impact on marketing efforts
• Impact on portfolio composition and performance
• Impact on profitability
• Timing issues
• Lessor servicing
• Third-party contract servicing
• Personal property tax issues
• Sales tax reporting
• Internal systems and reporting issues

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SOURCES OF FINANCING FOR A LEASING COMPANY

• Sources Include
• Bank and/or Financial Institution
• Finance Company
• Private Loans
• Other Lease Companies
• Pension Funds
• Insurance Companies
• Common Funding Methods
• Internal Funding
• Brokerage
• Discounting
• Definition of “discounting”
• Elements of the discount transaction
• Mathematical calculations for the discount transaction
• Timing adjustments
• Economics of the discount transaction
• Effects of discounts, holdbacks, or other reserves
• Lease Packaging
• Lease package defined
• Elements of a lease package
• Who determines the content
• Who determines the structure
• The package “narrative”
• The package “request”
• Financial data analysis as part of the lease package
• Tailoring the package to the requirements of the funder
• Equity and Debt
• Sale of company interest
• Common stock
• Preferred stock
• Issues of company control
• Shareholder issues
• Securities law compliance
• Cost of funds
• Private Investors
• Transactional sales
• Portfolio Sales
• Determination of price and terms
• Possible effects on remaining portfolio
• Marketing considerations
• Public Debt Offering
• Corporate bonds
• Other debt instruments
• Securities law compliance
• Limited partnerships/trusts
• Asset Securitization
• Nature of the securitization transaction
• Asset backed financing
• Structure of the securitization transaction
• Pay through structure
• Pass through structure
• Parties to a securitization and their respective roles
• Lessee
• Lessor
• Attorney
• Outside auditors
• Rating agencies
• Outside servicer
• Appraiser
• Investment Bankers
• Trustee
• Investor
• Institutional
• Individual
• Lessor motivations and benefits in a securitization
• Potential lessor problems in a securitization
• Servicing obligations
• Tax considerations
• Sale vs. loan treatment of the transaction
• Book treatment
• Tax treatment
• Personal property tax considerations
• Sales and use tax considerations
• Recourse vs. non-recourse structure/UNL
• Credit enhancements
• Economics of the securitization to the lessor
• Cost of funds
• Transactional costs
• Securitization strategies for the lessor
• Short term benefits and detriments
• Long term benefits and detriments
• Securities law compliance and liability

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FINANCIAL & TAX ACCOUNTING FOR LEASES

• Definitions
• Fair market value
• Fair rental value
• Bargain purchase option
• Bargain renewal option
• Economic life
• Estimated residual value
• Unguaranteed residual value
• Lease Term
• Non-cancelable lease
• Minimum lease payments receivable
• Lessor’s implicit rate
• Calculation of lessor’s implicit rate
• Lessee’s incremental borrowing rate
• Initial direct costs (IDC)
• Contingent rentals
• Accrual basis accounting
• Cash basis accounting
• Aging the receivables/payables
• Non-performing account
• Reserves
• Amortization
• Cash flow
• Appreciation
• Depreciation
• Depreciation methods
• Straight line
• Double declining balance
• 150% declining balance
• Sum of the years
• MACRS
• Book Depreciation
• Tax Depreciation
• Part year conventions
• Inventory valuation methods
• LIFO
• FIFO
• Average Cost
• Liquidate
• Negative cash flow
• Working capital
• Capitalized cost
• Compensating balance
• Tax accounting methods
• Book accounting methods
• Sales and use taxes
• Lessor liability
• Reporting requirements
• Payment options
• Liability on residual sale
• Liability on assignment or lease by lessor
• Personal Property Taxes
• Assessment process
• Lessor liability for personal property taxes
• Historic view of FASB 13
• Provisions of FASB 13
• Historic view of IRS Revenue Ruling 54-540 and Revenue Procedure 75-21
• Provisions of Revenue Ruling 55-540
• Provisions of Revenue Procedure 75-21
• Book accounting for a capital lease
• Determination of accounting treatment through FASB 13 rules
• Calculation of “90%” rule
• Lessor’s treatment using lessor’s implicit rate
• Lessee’s treatment using incremental borrowing rate
• Entering the capital lease on the lessor’s balance sheet
• Entering the payments received from the lessee on a capital lease on the lessor’s balance sheet and operating statement
• Entering the capital lease on the lessee’s balance sheet
• Entering the payments paid by the lessee on the lessee’s balance sheet and operating statement
• Tax accounting for a non-tax (capital) lease
• Determination of tax treatment through Revenue Ruling 55-540 and, as applicable, Revenue Procedure 75-21
• Entering the non-tax lease on the tax books of the lessor
• Entering the payments received from the lessee on the tax books of the lessor
• Entering the non-tax lease on the tax books of the lessee
• Entering the payments paid by the lessee on the tax books of the lessee
• Book accounting for an operating lease
• Determination of accounting treatment through FASB 13 rules
• Calculation of “90%” rule
• Lessor’s treatment using lessor’s implicit rate
• Lessee’s treatment using incremental borrowing rate
• Entering the operating lease on the lessor’s balance sheet
• Entering the payments received on a operating lease on the lessor’s balance sheet and operating statement
• Entering the operating lease on the lessee’s balance sheet
• Entering the payments paid by the lessee on the lessee’s balance sheet and operating statement
• Tax accounting for a tax (operating) lease
• Determination of tax treatment through Revenue Ruling 55-540 and, as applicable, Revenue Procedure 75-21
• Entering the tax lease on the tax books of the lessor
• Entering the payments received from the lessee on the tax books of the lessor
• Entering the tax lease on the tax books of the lessee
• Entering the payments paid by the lessee on the tax books of the lessee
• Reasons for differences in treatment of a lease between book and tax
• Accounting treatment
• Different rules between tax and book
• Accounting methods
• Accrual vs. Cash
• Difference in book accounting treatment between lessee and lessor
• Lessor’s implicit rate vs. lessee’s incremental borrowing rate

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PORTFOLIO MANAGEMENT

• Issues related to portfolio management
• Portfolio quality
• Residual realization
• Financial statement integrity
• Maintenance of financial relationships
• Competition
• Insurance issues
• Personal property tax exposure
• Marketing and sales efforts and requirements
• Quality of accounting data
• Recourse exposure
• Delinquencies
• Concentrations
• Asset management and disposition
• Profitability
• Projections for the future
• Analysis of the lease portfolio
• Weighted averages
• Computing weighted averages
• Determining the portfolio yield
• Weighted average yield
• Determining the portfolio term
• Weighted average term
• Ramifications of portfolio term on portfolio management and lease company management issues
• Analysis of portfolio aging
• Residual valuations
• Tracking actual residual realizations
• Loss reserves
• Methods for determining loss reserves
• Portfolio concentrations
• Types of concentrations
• How concentrations may occur
• How concentrations may be avoided

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GOVERNMENT LEASING

• Definition of “government”
• Municipal
• Federal
• Quasi-Federal
• Prime Contractors
• Indian tribes and nations
• Not-for-profit entities
• Public and private activities
• Municipal government lease documentation
• Form of lease agreement
• Bank qualification letter
• Legal opinion
• Proof of authority
• U.S. form 8038G or 8038GC
• UCC-1
• Statement of essential use
• Acceptance certificate
• Insurance documentation
• Delivery and Acceptance
• Other miscellaneous documentation
• Federal Government lease documentation
• Purchase order
• Addendum to purchase order
• Inspection, receiving & acceptance report/certificate
• Vendor documentation
• Special terms and conditions in government leases
• Non-appropriations clause
• Non-Substitution clause
• Termination at the convenience of the government
• Base closure clause
• Contract termination clause
• Benefits of government leasing
• Tax benefits
• Municipal
• Indian tribes and nations
• Federal Government

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