Reference
Equipment Finance Glossary
Definitions of key terms used across equipment finance.
Owner: The AI CEO·Version: v1.0·Working Copy, synced from Notion
Parties & Roles
| Term | Meaning |
|---|---|
| Lessor | The party that owns the equipment and leases it to the lessee. |
| Lessee (Company Name) (end user) | The party that uses the equipment and makes lease payments to the lessor. |
| Obligor | The party legally responsible for repayment on a loan or lease. |
| Personal Guarantor | An individual (e.g., owner/principal) who personally guarantees the obligor's performance. |
| Corporate Guarantor | A business entity that guarantees the obligor's performance. |
| Vendor | The equipment seller or manufacturer; often the originating partner in vendor finance programs. |
| Dealer | The authorized reseller that sells the equipment to the end user (often distinct from the manufacturer). |
| Manufacturer | The entity that produces the equipment; may sell direct and/or through a dealer network. |
| Broker | A third-party originator who sources deals and places them with a funding source. |
| Broker Captive | A finance company owned/controlled by a brokerage or referral partner, used to fund (or participate in) the brokers originated transactions. |
| Captive | A finance company owned by a manufacturer to finance its own equipment (e.g., Caterpillar Financial). |
| Independent | A non-bank, non-captive finance company funding its own portfolio. |
| Bank-owned EF | An equipment finance subsidiary of a regulated bank (OCC/FDIC supervised). |
Origination & Underwriting
| Term | Meaning |
|---|---|
| Application-Only (App-Only) | Credit decision made from a one-page app without full financial spreads; typically up to $250K - $500K. |
| Full Financial Package | Credit decision supported by tax returns, financials, bank statements, and personal financial statements. |
| PayNet | Commercial credit bureau specific to small business lending and equipment finance. |
| Credit Memo | Underwriter's written recommendation summarizing obligor, collateral, structure, risk, and approval rationale. |
| Risk Rating | Internal credit grade (commonly A - G or 1 - 9) assigned to each obligor. |
| Approval Authority / Schedule A | Document defining dollar limits and rating thresholds for each approval level. |
| Stip (Stipulation) | Required document or condition that must be satisfied before funding. |
| Stip Package | The complete set of stipulations collected prior to funding. |
| Pre-Funding | All steps and conditions that must be completed before disbursing funds (e.g., stips cleared, docs executed, vendor invoice verified, insurance/endorsements in place). |
| Funding | Disbursement of proceeds to the vendor or lessee after all stips clear. |
| Boarding / Booking | The post-funding step of loading the contract into the servicing system of record. |
Systems
| Term | Meaning |
|---|---|
| LOS | Loan Origination System (e.g., LeasePath, Salesforce-based systems). |
| Servicing Platform | System of record for portfolio servicing (e.g., LeasePath, Solifi, Odessa). |
| Servicing | Ongoing management of the contract: billing, payments, customer service, insurance, title, reporting. |
| Nutshell (CRM) | A customer relationship management (CRM) platform used by some equipment finance companies to track contacts, opportunities/deals, communications, tasks, and related documents. |
| Turbo Lease | A loan origination system (LOS) used in equipment finance to manage the origination workflow and related operational processes. |
Contract Structures
| Term | Meaning |
|---|---|
| $1 Buyout | $1 Buyout is a contract structure — not an accounting classification. It's a finance lease where the end-of-term purchase option is set at $1, making the purchase economically compelled. Because no rational lessee would walk away from a $1 option, it automatically meets the "transfer of ownership" test under ASC 842, which means it will always be classified as a finance lease on the lessee's books. |
| Finance Lease / Capital Lease | Finance Lease = Capital Lease. Same structure, different naming conventions. Under legacy GAAP (ASC 840), the term was "capital lease." Under the current standard (ASC 842, effective 2019 for public companies, 2022 for private), it was renamed "finance lease." The economics are identical: substantially all risks and rewards of ownership transfer to the lessee, the asset and corresponding liability hit the lessee's balance sheet, and the lessee depreciates the asset. If you hear someone say "capital lease," they're either using legacy terminology or speaking colloquially the accounting treatment is the same. |
| Equipment Finance Agreement (EFA) | A secured loan used to purchase equipment, where the borrower takes ownership of the asset at closing and the lender holds a security interest (via UCC-1 filing or title lien) until the obligation is paid in full. It is not a lease. |
| Installment Payment Agreement (IPA) | A secured financing contract where the borrower purchases equipment and repays the lender in fixed installments over a defined term, with the lender retaining a security interest in the equipment until paid in full. Functionally synonymous with an EFA — the term "IPA" is used by some lenders and platforms as an alternative label for the same structure. |
| Operating Lease | Lease where lessor retains residual risk; lessee does not own the asset. |
| TRAC Lease | Terminal Rental Adjustment Clause lease, used for titled over-the-road vehicles. |
| Split-TRAC | TRAC lease with shared residual risk between lessor and lessee. |
| FMV (Fair Market Value) Purchase Option | End-of-term option to buy the equipment at its then-current fair market value. |
| PUT (Purchase Upon Termination) | Mandatory end-of-term purchase at a pre-set price. |
| Residual | The projected or contracted value of equipment at lease end. |
| Advance Rate | Portion of equipment cost financed (e.g., 100%, 90%). |
| Finance Cost | The total cost of financing over the term of the contract (e.g., interest/rent charges and any financed fees), often expressed as total dollars and/or an implied rate. |
| Advanced Payments | Payments collected at or before funding (e.g., first and last payment) to reduce risk and/or lower the amount financed; sometimes called payments in advance. |
| Soft Costs | Non-hardware costs financed alongside equipment (installation, training, software, delivery). |
| Hell-or-High-Water Clause | Lessee's unconditional obligation to pay regardless of equipment performance or defects. |
Collateral, Title & Lien
| Term | Meaning |
|---|---|
| UCC-1 | Financing statement filed to perfect a secured interest in collateral. |
| UCC-3 | Amendment, continuation, assignment, or termination of a UCC-1. |
| UCC Article 9 | UCC Article 9 is the section of the Uniform Commercial Code that governs secured transactions any transaction where a creditor takes a security interest in personal property (including equipment) as collateral for a debt. It defines how security interests are created (attachment), how they are made enforceable against third parties (perfection via UCC-1 filing), priority rules when multiple creditors claim the same collateral, and the creditor's remedies on default (repossession, disposition, deficiency recovery). In equipment finance, Article 9 is the legal framework underlying every EFA, IPA, and conditional sale contract. It does not govern true leases — those fall under Article 2A. |
| Continuation | UCC refiling required every 5 years to maintain lien perfection. |
| Lien Perfection | Legal steps (UCC filing, title notation) that make a security interest enforceable against third parties. |
| Titled Asset | Equipment with a government-issued title (trucks, trailers, some medical/aircraft). |
| ELT (Electronic Lien and Title) | State system for electronic title and lien recording. |
| CPI (Collateral Protection Insurance) | Force-placed insurance obtained by lessor when lessee fails to maintain required coverage. |
| Additional Insured / Loss Payee | Required endorsements naming lessor on lessee's insurance certificate. |
Portfolio & Credit Performance
| Term | Meaning |
|---|---|
| DPD | Days Past Due - standard delinquency aging measure. |
| Aging Buckets | Delinquency cohorts - typically Current, 1 - 30, 31 - 60, 61 - 90, 90+ DPD. |
| Non-Accrual | Status assigned when interest recognition is suspended, typically at 90+ DPD. |
| Impaired | Classification indicating probable loss of some principal or interest. |
| Workout | Restructured payment arrangement for a distressed obligor. |
| NSF | Non-Sufficient Funds - returned ACH or check. |
| Redraft | Re-attempted ACH pull after a failed payment. |
| Notice to Cure | Formal written notice giving obligor an opportunity to correct default. |
| Notice of Default | Formal declaration that the contract is in default. |
| Acceleration | Demand for full remaining balance due immediately after default. |
| Repossession | Recovery of collateral after default. |
| Remarketing | Sale of recovered equipment to recover losses. |
| Deficiency Balance | Remaining amount owed after repossession sale proceeds are applied. |
| Charge-Off | Accounting recognition that a receivable is uncollectible; removed from active portfolio. |
| Recovery | Post-charge-off collections applied against previously written-off balances. |
| Original Charge-off Amount | Book value of loss to financials. |
| Coll Legal Fees | Every legal fee, active or charged off, is placed in this location (running total). |
| Coll Call or Inspection Fees | Every collection assist and inspection fee paid, active or charged off, is placed in this location (running total). |
| Coll Repo Charges | Repossession-related charges paid. |
| Coll Other Fees | Any fee that is not inspection, repo, or storage (replacement keys, cleaning of vehicle/equipment, repairs, etc.). If repair costs are paid to realize a higher resale value, those fees are placed here. |
| Coll Bad Debt Recovery | Amount recovered after charge-off (running total). |
| Coll Appraisal | Not used by collections. Appraisal is covered by Inspection Fees because we try to bundle inspection, pictures, condition, and value into one order. |
| Coll Storage | Storage fees paid. |
Portfolio Management
| Term | Meaning |
|---|---|
| Concentration Limit | Maximum portfolio exposure to a single obligor, vendor, industry, or geography. |
| Vintage | Cohort of deals grouped by origination period for performance tracking. |
| Static Pool Analysis | Loss curve analysis tracking a fixed origination vintage over time. |
| Portfolio Yield | Effective interest earned across the portfolio. |
| Syndication | Sale or participation of a deal or pool to another funder. |
| Assignment | Transfer of contract rights from one party to another. |
| Discounting | Selling future lease payments to a funder at a discount for immediate cash. |
| Warehouse Line | Revolving credit facility used to fund originations prior to permanent placement. |
| Securitization | Packaging of contracts into asset-backed securities for sale to investors. |
End of Term & Servicing Events
| Term | Meaning |
|---|---|
| End-of-Term (EOT) | The period 90 - 120 days before contract maturity when renewal, return, or buyout is negotiated. |
| Evergreen | Automatic month-to-month extension clause after stated term. |
| Buyout Quote | Payoff amount including remaining rents, residual, taxes, and fees. |
| Payoff Quote | Total dollars required to satisfy the contract in full on a given date. |
| Balance Due | Sum of all remaining scheduled payments (principal + interest/rent) owed under the contract. It's a contractual number — what the borrower owes if they ride the agreement to maturity. |
| Assumption | Transfer of an existing contract to a new obligor with lessor approval. |
| Modification | Formal amendment to contract terms (rate, payment, maturity, collateral). |
Compliance & Regulatory
| Term | Meaning |
|---|---|
| Reg B | Equal Credit Opportunity Act requirements, including adverse action notices and record retention. |
| Adverse Action Notice | Required notice to applicant when credit is declined, with specified reasons. |
| FDCPA | Fair Debt Collection Practices Act - primarily consumer; commercial exclusions apply. |
| TCPA | Telephone Consumer Protection Act - governs call/text/auto-dialer practices. |
| OFAC | Office of Foreign Assets Control - sanctions screening required on all parties. |
| KYC / KYB | Know Your Customer / Know Your Business - identity and entity verification. |
| BSA/AML | Bank Secrecy Act / Anti-Money Laundering program requirements. |
| ALLL / CECL | Allowance for Loan and Lease Losses / Current Expected Credit Loss - loss reserve methodology. |
Why Definitions Matter for Automation
For automation to function reliably, definitions must be identical across every system that touches a workflow. When a term means one thing in your LOS, another in your CRM, and something else in your agent instructions, you get translation errors -- process failures, missed triggers, and security gaps that are hard to trace back to their source. Shared vocabulary is not a documentation exercise. It is an operational requirement.
Related: U.S. Treasury AIEOG AI Lexicon (February 2026)
The U.S. Department of the Treasury, alongside NIST, ISO/IEC, the SEC, and the FDIC, published 50 official AI definitions that financial services institutions are expected to align with. If your AI systems touch credit decisions, customer communications, or compliance workflows, these are the definitions that regulators will use.
Read the full AIEOG AI Lexicon breakdownSource: Notion, Equipment Finance Glossary (Working Copy). Live sync enabled.