Apply

Home / Glossary

Equipment financing terms, explained in plain words.

Every term you will run into when financing equipment, from the first application to the last payment, explained the way it actually plays out for a business. Start at the top for the basics, or type a word to find it.

The basics

Equipment financing

Borrowing to buy a piece of equipment, with the equipment itself standing behind the loan. The lender pays the vendor, the business makes a fixed monthly payment, and when the payments are done the equipment is owned outright. It is different from a bank loan in one important way: the lender is looking at the equipment and the business running it, not the whole balance sheet.

Equipment leasing

Paying to use equipment for a set term rather than buying it up front. At the end of the term the business can usually buy the equipment, return it, or keep leasing it, depending on the type of lease (see FMV lease, $1 buyout lease). In practice most "leases" on production equipment end with the business owning the machine.

Direct lender

A finance company that reviews the application, makes the credit decision and funds the deal with its own money. One company, one decision, one point of contact. iFinancial Group is a direct lender.

Broker

A middleman who takes an application and sends it to a list of lenders to see who will take it. The broker does not make the credit decision and does not fund the deal. The file gets passed around, several parties pull credit, and the answer depends on whoever bites. iFinancial Group is not a broker.

Captive lender

The finance arm of an equipment manufacturer, set up to finance that manufacturer's own equipment. Captives can be competitive on their own brand and generally will not touch anything else, including used equipment, other brands, or the installation and tooling around the machine.

Independent lessor

An equipment finance company that is not owned by a bank or a manufacturer. Independents finance any brand, new or used, and generally have more room to structure a deal around the business than a bank or captive does.

Lessor and lessee

The lessor owns the equipment and leases it out. The lessee is the business using it and making the payments. On a loan the same two parties are called the lender and the borrower.

Vendor

The company selling the equipment: a dealer, distributor, manufacturer or private seller. The lender pays the vendor directly; the business never has to front the money.

Term

How long the financing runs, counted in months. Equipment terms are typically 60 months and can run as long as 84 depending on the equipment and the file.

Application only (app only)

Financing approved on the strength of a signed application alone, with no tax returns and no audited financial statements. The lender pulls the business's credit history and makes a decision from that. iFinancial Group's application-only program runs with no minimum and up to $1,000,000 on a one-page application.

Full financial package (full doc)

The opposite of application only. The lender wants tax returns, year-end financial statements, often interim statements and a debt schedule before it will decide. Banks almost always work this way. It takes longer and it puts the whole business under review rather than just the equipment.

Time in business (TIB)

How long the company has been operating, usually measured from the date it was formed or the date it started invoicing. Many lenders decline automatically under two years. iFinancial Group has a separate program for newer businesses, and the requirements vary by file.

Startup

A business under two years old, or one that has not yet started operating. Startups can be financed; the review just looks at more than the company's own history, since there is not much of it yet.

The application and the decision

Credit application

The form that starts everything. iFinancial Group's is one page: who the business is, who owns it, what the equipment is and who is selling it. It is the same form for a small first machine and a $1,000,000 line.

Entity type

Whether the business is a corporation, an S corporation, an LLC, a partnership or a sole proprietorship. It determines who signs, who guarantees and how the paperwork is drawn up. It does not by itself decide whether a deal gets approved.

Tax ID (EIN)

The business's federal identification number, issued by the IRS. It is how the lender pulls the business's credit history. A sole proprietor may use a personal taxpayer number instead.

Ownership percentage

How much of the company each owner holds. Lenders ask because owners above a certain percentage are usually the ones who sign, and because it tells the lender who actually controls the business.

Guarantor

A person or company that promises to make the payments if the business does not. See personal guarantee.

Personal guarantee (PG)

The owner's personal promise to stand behind the financing if the business cannot. Most lenders require one on every deal. At iFinancial Group it is not automatic: every file is reviewed on the business and the equipment first, and on most files the goal is an approval without one. If a particular file needs a guarantee, you know before you sign anything.

Corporate guarantee

Same idea as a personal guarantee, but the promise comes from another company, usually a parent or affiliate, rather than from an individual.

Credit decision

The lender's answer: approved, approved with conditions, or declined. At iFinancial Group it comes from a person reviewing the file, not from a scoring model, and terms are typically back within 24 hours.

Conditional approval

An approval that depends on something still to come: a copy of the invoice, proof of insurance, a signed guarantee. The decision is made; the conditions are the paperwork that lets it fund.

Terms

What the approval actually offers: the amount, the term in months, the payment, the structure and any conditions. Terms are an offer from the lender. Nothing is owed until you accept them.

Approval hold period

How long an approval stays good once issued. iFinancial Group's approvals hold for up to 60 days, which means you can get approved now and decide on your own schedule.

Underwriting

The review of the file: the business, the owners, the equipment and the structure. "Underwritten here" means the lender's own people do it, rather than sending the file out. iFinancial Group underwrites in house and does not shop the file.

Shopping a file

Sending one application to many lenders at once, which is what brokers do. Each lender pulls credit, each sees the same file, and the business ends up with several inquiries and no single point of contact. A direct lender does not shop the file.

PayNet

A credit bureau for businesses, built from the payment histories that equipment lenders report on their loans and leases. Where a consumer bureau shows credit cards and mortgages, PayNet shows how a company has paid on equipment. Most equipment lenders pull it first.

Comparable credit (comp debt)

Borrowing history on something of similar size to what is being requested. A business that has paid a $300,000 lease on time has comparable credit for a $350,000 request. A business whose only equipment history is a bank line does not show comparable credit on PayNet, which is a common reason strong companies get a thin read. It is a question of what shows up in the data, not of how the business pays.

Thin file

A credit history with little in it, usually because the business is new or because its past borrowing was with a bank that does not report to the equipment bureaus. A thin file is not a bad file; it just means the lender has less to look at and may ask for more.

Decline

A no. Lenders differ widely in what they decline for: time in business, industry, equipment type, a thin file. A decline from one lender says very little about what another will do with the same file.

Structure and payments

Structure

How the financing is shaped: the term, when payments start, whether they are level or change over time, and what happens at the end. The structure is where a deal gets fitted to the business. iFinancial Group's position is that the payment should be built around the business, not the business around the payment.

Level payments

The same payment every month for the whole term. The default structure on most deals.

Deferred payments

The first regular payment pushed out past the funding date, so the equipment is installed and working before the business pays for it. iFinancial Group can often defer up to 90 days.

Step payments (step-up)

Payments that start lower and rise on a set schedule as the equipment goes to work. Useful when a new machine takes a few months to reach full production.

Seasonal payments

Payments shaped to a seasonal business: higher in the busy months, lower or none in the slow ones. Common in agriculture, landscaping and construction.

Skip payments

A structure where certain months carry no payment at all, agreed up front. A form of seasonal payment.

Deferral and step combined

Both at once: a deferred start, then payments that step up. Available at iFinancial Group when the file supports it.

Advance payment

A payment collected at signing, often the first or the first and last, rather than a down payment. It is applied to the financing and is not an extra cost.

Down payment

Cash the business puts in at the start to reduce the amount financed. Many lenders require 10 to 20 percent. Where the vendor requires a deposit at order, iFinancial Group can prefund it so the business is not out of pocket (see prefunding).

Prefunding

The lender pays the vendor at order rather than only at delivery. Many vendors want 20 to 50 percent down to start a build, and that deposit is where a lot of deals stall. With prefunding the deposit becomes part of the financing. How much is prefunded at order depends on the vendor's terms and the file.

Progress payments

A series of payments to the vendor during a long build or installation, released at milestones. A form of prefunding on larger projects.

Hard costs

The equipment itself: the machine, the truck, the system. What the invoice is mostly made of.

Soft costs

Everything it takes to put the equipment to work that is not the machine: freight, rigging, installation, software, training, warranties. Soft costs can be included in the financing at iFinancial Group, on many deals up to 30 percent of the total, so the business is not paying cash for the parts around the machine.

Amortization

The schedule by which each payment pays off the balance over the term. On a fully amortized loan the balance is zero at the last payment. On a balloon loan it is not.

Balloon payment

A large final payment at the end of a term, with lower payments along the way. The business either pays the balloon, refinances it or sells the equipment. Not a feature of a standard equipment finance agreement.

Interim rent

On some leases, rent charged for the days between funding and the first regular payment date. Worth asking about on any lease so it does not show up as a surprise.

Early payoff (prepayment)

Paying the financing off before the end of the term. Whether there is a prepayment charge, and how a payoff is calculated, varies by lender and by agreement. Ask before you sign, not after.

Payoff

The amount needed to close out the financing on a given date. Read it carefully: on some agreements it is the remaining balance, on others it is the sum of the remaining payments.

Loans, leases and the end of term

Equipment finance agreement (EFA)

A loan in everything but name, written on equipment. The business owns the equipment from day one, the lender holds a security interest in it until the last payment, and there is no end-of-term decision because there is nothing to buy. The most common structure for a business that intends to keep the equipment.

$1 buyout lease (capital lease)

A lease where the business buys the equipment for one dollar at the end of the term. For practical purposes it works like a loan: fixed payments, and the business ends up owning the machine. Chosen over an EFA for accounting or state tax reasons more than anything else.

Fair market value (FMV) lease

A lease where, at the end of the term, the business can return the equipment, keep leasing it, or buy it for what it is worth at the time. Payments are lower than a $1 buyout because the lender is counting on the equipment having value at the end. Used for equipment that turns over quickly: technology, vehicles, some medical.

TRAC lease

Terminal rental adjustment clause. A lease for titled vehicles and trailers where the end-of-term value is set in the contract up front. If the vehicle sells for more, the business gets the difference; if it sells for less, the business covers it. Common in fleet. iFinancial Group writes TRAC leases.

PUT lease

Purchase upon termination. A lease with a fixed purchase price at the end that the business is required to pay. The payments are lower than a $1 buyout because part of the cost is pushed to the end, and the end is not optional. iFinancial Group writes PUT leases.

Residual value

What the equipment is expected to be worth at the end of the term. On an FMV or TRAC lease the residual is what sets the payment; a higher residual means a lower payment.

End-of-term options

What the business can do when the lease runs out: buy, return, renew. Which options exist, and at what price, is set by the type of lease. Read this part of any lease before signing.

Master lease

One master agreement, signed once, with each piece of equipment added on its own schedule as it is purchased. Built for businesses buying equipment repeatedly: multi-site rollouts, expanding shops, ongoing programs. One approval covers the whole program. At iFinancial Group master leases run from $10 million up.

Schedule

The one-page addendum under a master lease that describes a specific piece of equipment, its cost, term and payment. Each new purchase gets its own schedule under the one master agreement.

Net lease

A lease where the business, not the lessor, pays the taxes, insurance and maintenance on the equipment. Most equipment leases are net leases.

Sale-leaseback

Selling equipment the business already owns to a lender and leasing it back, which puts the cash back in the business while the equipment keeps working. iFinancial Group's version: equipment paid for in cash, typically within the past 90 days, financed at up to 100 percent of the invoice. Older purchases are worth asking about.

Refinance

Replacing existing equipment financing with new financing, usually for a lower payment, a longer term or to pull cash out of equipment that is nearly paid off.

Working capital loan

A loan not tied to a piece of equipment, used for payroll, materials, inventory or a job that pays slowly. iFinancial Group's working capital loans can carry monthly payments rather than daily or weekly debits, and can fund as quickly as the same day. Where part of the need is equipment, that piece can be financed on its own terms.

Merchant cash advance (MCA)

Not a loan. A company buys a slice of the business's future sales for a lump sum today, and collects it through daily or weekly debits from the bank account. The cost is quoted as a factor rate, not an interest rate, and it is usually far higher than it looks. It is worth knowing the difference before signing anything that debits daily.

Line of credit

A revolving limit the business can draw against and pay down, usually from a bank, usually secured by a blanket lien on the business. Equipment financed on its own does not draw on the line, which leaves it open for everything else.

Collateral and paperwork

Collateral

What stands behind the financing. On an equipment deal it is the equipment. The lender's claim on it is what lets the deal be approved on the equipment and the business rather than on everything the business owns.

Security interest

The lender's legal claim on the collateral until the financing is paid. It is what gets recorded in a UCC filing.

UCC-1 filing

A public notice, filed with the state, that a lender has a claim on specific collateral. Anyone running a search on the business can see it. On an equipment deal the filing names the equipment, and only the equipment.

Blanket lien

A UCC filing that claims everything the business owns, not one piece of equipment: receivables, inventory, equipment, bank accounts, and whatever it acquires later. Banks file them routinely on lines of credit and term loans. iFinancial Group files only on the equipment it finances. There is no blanket lien.

Subordination

When one lender agrees to let another lender's claim come first on a specific asset. Needed when a bank's blanket lien covers equipment a new lender is financing. Some banks sign easily; some do not.

Covenants

Promises written into a loan agreement that go beyond making the payments: keep certain ratios on the books, report financials on a schedule, get the bank's permission before buying equipment or taking on other debt. Break one and the loan can be called even if every payment is current. iFinancial Group's paperwork has none of these. Make the payments and the agreement is kept.

Financial covenant

A covenant tied to a number on the financial statements: a cash flow ratio, a leverage ratio, a minimum net worth. The business can be in default on the day the number moves, with no missed payment.

Capital expenditure (capex) restriction

A covenant that requires the lender's approval before the business buys equipment or makes any other capital purchase. Common in bank loans. Not in iFinancial Group's paperwork.

Default

Failing to meet the agreement. On an equipment finance agreement that means not paying. On many bank loans it can also mean breaking a covenant, with every payment current.

Cross-default

A clause that puts a loan in default because a different loan went into default. One problem at one lender becomes a problem everywhere. Worth looking for in any bank paperwork.

Delivery and acceptance (D&A)

A signed confirmation that the equipment arrived and works. The lender funds the vendor after it is signed. On a prefunded deal, part of the funding happens before delivery and the balance on acceptance.

Funding call (verbal verification)

A short call from the lender to the business, before paying the vendor, to confirm the equipment was delivered and accepted as described. A standard step, not a sign of a problem.

Funding

The lender paying the vendor. The deal is done when it funds. On most equipment deals funding happens within a day or two of the signed documents and the delivery confirmation.

Loss payee

The lender named on the business's insurance policy for the financed equipment, so that if the equipment is damaged or destroyed the insurance proceeds cover the financing. Standard on every equipment deal.

Title

For vehicles and trailers, the state document showing ownership. On a vehicle loan the lender is listed as lienholder on the title until the loan is paid. On a TRAC lease the lessor holds the title.

Invoice

The vendor's bill for the equipment: what it is, serial number, price, delivery terms. The invoice is what the lender funds against. A quote or pro forma invoice is what the application is built on; the final invoice is what gets paid.

Pro forma invoice

A preliminary invoice from the vendor, issued before the sale is final, with the equipment, price and terms. Enough to get an approval started.

Tax

Section 179

The part of the tax code that lets a business deduct the full purchase price of qualifying equipment in the year it is placed in service, rather than depreciating it over several years. Financed equipment qualifies the same as equipment paid for in cash, which is why a machine financed in December can produce a deduction against that year's income while the first payment has not come due. Limits and phase-outs change annually; confirm the treatment of your own purchase with your tax advisor.

Bonus depreciation

A separate provision that lets a business deduct a large percentage of an asset's cost in the first year, on top of or instead of Section 179, with different rules on limits and on used equipment. The percentage has changed several times in recent years. Your tax advisor will know the current figure.

Placed in service

The date the equipment is installed and ready for use, which is the date that counts for Section 179 and depreciation. Not the order date, and not the payment date. A machine ordered in November and running in January is a next-year deduction.

Depreciation (MACRS)

The default way equipment is written off for tax when Section 179 or bonus depreciation is not used: a set percentage each year over the asset's recovery period, usually five or seven years for most equipment.

Tax lease vs non-tax lease

On a tax lease (an FMV lease, for example) the lessor owns the equipment for tax purposes and takes the depreciation; the business deducts the payments. On a non-tax lease ($1 buyout, EFA) the business is treated as the owner and takes the depreciation and Section 179. Which one is better depends on the business's tax position.

Vendor and dealer terms

Vendor finance program

An arrangement where a lender finances an equipment vendor's customers, so the vendor can offer a payment alongside the price. The vendor sells more because the deposit and the financing are handled; the customer gets one point of contact. iFinancial Group runs vendor programs for dealers, distributors and manufacturers.

Co-branded application

An application page or form carrying the vendor's name alongside the lender's, so the vendor's customers apply through the vendor rather than being sent elsewhere.

Private label

A vendor finance program where the financing is offered entirely under the vendor's own name, with the lender behind it.

Dealer

A company that sells equipment on behalf of a manufacturer, usually within a territory. Dealers are the most common vendors on equipment deals.

Decline referral (second look)

A vendor sending a customer that another lender turned down to a second lender for review. Different lenders decline for different reasons, so a decline elsewhere is often a deal somewhere else. iFinancial Group takes second looks.

Deposit

The money a vendor asks for at order to start a build or hold a machine. See prefunding for how it can be financed rather than paid in cash.

Used equipment

Equipment that has been owned and operated before. Many captives and some banks will not finance it. iFinancial Group finances new and used equipment, including private party and auction purchases.

Private party sale

Buying equipment from another business or an individual rather than a dealer. Financeable; the lender will want the seller's information, a bill of sale and usually a lien search on the equipment.

Auction purchase

Equipment bought at a live or online auction. Auctions run on a clock, with payment due within days, which is where the speed of an application-only decision matters most.

The industry

Equipment Leasing and Finance Association (ELFA)

The trade association for the equipment finance industry in the United States. iFinancial Group is a member.

Ticket size

Industry shorthand for the size of a deal. Small ticket is roughly under $250,000, middle ticket runs into the low millions, large ticket is above that. The labels matter because lenders are built around a ticket size and will often not look at a deal outside their range. iFinancial Group's application-only program covers no minimum up to $1,000,000, with master leases above that.

Obligor

The party legally obligated to pay: the borrower on a loan, the lessee on a lease. Lender paperwork uses the word to cover both.

Portfolio

The collection of loans and leases a lender currently holds. A lender that funds with its own money carries the deals on its own portfolio; a broker has no portfolio.

Origination

The front end of lending: finding the deal, taking the application and getting it to a decision. The opposite end is servicing, collecting the payments over the life of the agreement.

Acronyms

D&A · DBA · EFA · EIN · ELFA · FMV · MCA · PG · PUT · TIB · TRAC · UCC

Looking for how these fit together? The guides walk through the most common situations, and the FAQ answers the questions we hear most.

Send the application in.

One page. No tax returns or audited financial statements to apply. Terms are typically back within 24 hours.

Apply