Lease Financing for Small Businesses Key Terms

Terms you will find as you review lease financing options for your small business

By Ann Starr

Lease financing for small businesses can make a lot of sense because it can allow an owner to acquire all the equipment or assets needed without having to tie up a huge amount of cash. In most cases, a major expense will be equipment and you will want to brush up on the various companies that offer assistance with leasing options. In many cases there is a wide variety of choices, so these terms can help you begin your process.

Line of credit

A line of credit is money that is offered to a small business and can be either cash, overdraft protection or loan. Once it is established, it can be easily tapped if there is a need for additional funds. Interest is paid on the money only when it is actually needed. Firms that offer lease financing for small businesses will often set up a line of credit to make purchasing easier for the owner.
Try: Go to CreditorWeb for more information.

Depreciation

Depreciation is a term used to describe how the cost of an asset is spread out over the span of several years. Lease financing often ameliorates depreciation by allowing the small business owner to return the asset when it has depreciated completely so they can then lease a new one.
Try: InvestorWords.com has a brief definition of this term.

Fair market value

Fair market value (FMV) is an estimate of what a buyer is willing to pay a seller for an asset. Lease financing incorporates FMV into the calculations for an asset if the business owner decides to return the asset to the firm.
Try: HJ Ventures International provides a discussion on this topic.

Total cost of ownership

Total cost of ownership (TCO) is an estimate of the cost of owning an asset from the time it is purchased to the time it is sold. Lease financing firms build in an estimate of the TCO for a piece of equipment or asset when estimating how much the asset should bring in lease value.
Try: See TechTarget for a description of this term.

Revolving credit

Revolving credit is a type of credit such as a credit card and which does not have a predetermined number of payments. Leasing finance firms often offer revolving credit terms to companies to help them with liquidity for their day-today operations.
Try: Farlex does a good job of explaining this.

Financial life cycle management

Financial life cycle management is offered by some leasing firms to small businesses and helps them keep track of their equipment and manage it throughout its life cycle.
Try: Hewlett-Packard Development Company gives a good overview of how they help small businesses manage this process.