Your Guide to Common Terms From “$1 Buyout Lease” to “Working Capital”
Understanding the language of commercial equipment financing is essential for making smart financial decisions. But let’s be honest—industry jargon can get overwhelming fast.
Whether you’re applying for your first equipment loan, considering leasing options, or just trying to make sense of financing documents, this guide is here to help. We’ve created a clear, straightforward dictionary of common commercial equipment financing terms—written with business owners and managers in mind.
If you have questions, remember that our team at Team Financial Group is just a phone call away. We specialize in fast, flexible equipment financing and love helping business owners feel confident about their options.
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$1 Buyout Lease: A lease option that allows your business to purchase the equipment for a nominal fee—typically just $1—at the end of the lease term. This type of lease acts similarly to a loan, with predictable monthly payments, and is ideal if you plan to own the equipment long-term.
Learn more or apply for a $1 buyout lease on our financing page or this blog post.
A
Accounts Payable: The money your business owes to vendors, suppliers, or service providers. This is listed as a current liability on your balance sheet.
Accounts Receivable: The money owed to your business by customers or clients for goods or services delivered but not yet paid for. It’s considered a current asset.
Amortized Loan: A loan that is paid off through regular monthly payments over a set term. Each payment includes both interest and principal, with early payments being interest-heavy and later ones focused more on reducing the principal.
APR (Annual Percentage Rate): The total yearly cost of borrowing, expressed as a percentage. It includes the interest rate plus any additional fees or costs associated with the loan.
B
Balloon Payment: A large, lump-sum payment due at the end of a loan term. Common in structured financing, it can help lower monthly payments but requires planning for a big payoff at maturity.
Business Credit Score: A score ranging from 0 to 100 that reflects your business’s creditworthiness. A higher score can result in better financing terms and faster approvals.
C
Cash Flow Statement: A financial report showing the money coming in and going out of your business. It includes operating income, expenses, financing costs, and investments—critical for assessing your ability to repay a loan.
Collateral: Assets pledged to a lender to secure financing. If you default, the lender may seize the collateral to recover losses.
Capital Lease: Another term for a lease that functions like a purchase, typically with a $1 buyout option. The lessee assumes the risks and benefits of ownership.
D
Debt Service Coverage Ratio (DSCR): A financial metric that compares your available cash flow to your debt obligations. A DSCR above 1 means your business generates enough income to cover its debt payments.
Depreciable Assets: Business assets that lose value over time and can be depreciated for tax purposes. Examples include equipment, vehicles, and machinery.
Down Payment: An upfront payment made toward the total cost of a loan or lease. Many equipment loans offer 100% financing, so down payments may not be required.
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Equipment Financing Agreement (EFA): A type of loan that gives you full ownership of the equipment from the start. You make fixed monthly payments over time until the loan is paid in full.
Equipment Leasing: A rental agreement for equipment use. You don’t own the equipment, but you gain access for a set period, often with lower monthly payments and options to renew or buy at lease-end.
RELATED: What Happens When an Equipment Finance Lease Expires?
Equity: The value of ownership in your business or an asset after subtracting any liabilities or loans. A healthy equity position can help secure better financing.
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Fair Market Value (FMV) Lease: A lease where, at the end of the term, you can purchase the equipment at its estimated fair market value, continue leasing, or return it. This option is often ideal if you plan to upgrade equipment frequently.
Learn more about and apply for an FMV lease on our financing page.
Financing Statement (UCC-1): A public record filed by a lender to indicate their interest in financed property. This protects their legal rights in case of default.
Five Cs of Credit: Lenders consider five factors when evaluating financing applications:
- Character–Your business reputation and credit history
- Capacity–Your ability to repay
- Capital–Your business assets and equity
- Collateral–Assets you can pledge
- Conditions–Market or industry factors
Fixed Interest Rate: An interest rate that remains constant throughout the term of your loan or lease, ensuring predictable monthly payments.
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Guarantee (Personal or Corporate): A promise by an individual or business entity to repay the loan if the borrower defaults. Personal guarantees are common for small business financing.
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Independent Lenders: Financing providers that are not affiliated with traditional banks. They often offer more personalized service, faster approvals, and greater flexibility—like Team Financial Group.
Insolvency: When your business can’t pay its debts as they come due. Lenders may look at solvency ratios when assessing risk.
Interest Rate: The percentage of the loan amount charged by the lender for borrowing money. It can be fixed or variable.
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Leaseback (Sale-Leaseback): A financing option where you sell your owned equipment to a lender and lease it back. This allows you to free up working capital without interrupting business operations.
Lien: A legal claim a lender places on financed property. It remains in effect until the debt is paid off.
Loan-to-Value (LTV) Ratio: The percentage of the asset’s value covered by the loan. In equipment financing, LTV can be up to 100%, meaning no down payment is required.
Long-Term Debt: Debt obligations that are scheduled to be paid over a period longer than 12 months.
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Maintenance Agreement: A contract covering the upkeep and service of leased equipment. Often included in lease agreements for high-tech or specialized equipment.
Maturity: The end of the loan or lease term, when all scheduled payments are complete and ownership (if applicable) transfers or ends.
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Non-Amortized Loan: A loan where principal isn’t paid off gradually. Instead, you may make interest-only payments with the full principal due at the end (see “Balloon Payment”).
Net Operating Income (NOI): Revenue from your business operations minus expenses (excluding financing costs). Used to assess your ability to support debt.
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Operating Lease: A short-term lease where the equipment is returned at the end of the term. You don’t build equity, but payments may be lower and it keeps the asset off your balance sheet.
RELATED: What’s the Difference Between a Capital and Operating Lease
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Principal: The original amount borrowed, excluding interest and fees.
Private-Party Sale: A purchase made directly from an individual or business rather than a dealership or vendor. Some lenders, including Team Financial Group, offer financing for private-party equipment sales.
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Refinancing: The process of replacing an existing loan with a new one, often to get better terms, lower monthly payments, or extend the repayment period.
Residual Value: The estimated value of leased equipment at the end of the lease term. This influences buyout options and monthly payments.
Risk Assessment: The evaluation of your business’s ability to repay the financing. Includes credit history, industry trends, financial ratios, and cash flow analysis.
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Section 179 Deduction: A tax benefit that allows you to immediately expense the full cost of qualifying equipment or vehicles (up to the IRS limit) instead of depreciating over several years. Especially valuable for businesses looking to reduce taxable income and improve cash flow.
Secured Loan: A loan backed by collateral, such as equipment or other assets. Typically comes with lower interest rates due to reduced lender risk.
Short-Term Debt: Loans or obligations that must be paid within 12 months.
Step Payment Plan: Flexible financing structures where payment amounts adjust over time—either increasing (step-up) or decreasing (step-down)—to match cash flow patterns.
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Term: The agreed-upon length of time for repaying a loan or lease, typically expressed in months or years.
Traditional Loan: A standard loan where the lender provides funds to purchase equipment, and you repay with fixed monthly installments of principal and interest.
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Underwriting: The process lenders use to evaluate credit risk and determine whether to approve a financing application—and under what terms.
Unsecured Loan: A loan that does not require collateral. Usually comes with higher interest rates due to the higher risk for lenders.
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Variable Interest Rate: An interest rate that can fluctuate over time based on market conditions or index rates. Your monthly payments may increase or decrease accordingly.
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Working Capital: The amount of liquid assets your business has to cover daily operations. Calculated as current assets minus current liabilities.
Ready to Finance Equipment with Confidence?
At Team Financial Group, we help business owners across industries navigate equipment financing with ease. Whether you’re replacing outdated machinery, expanding operations, upgrading technology, or investing in vehicles, we’re here to provide fast and flexible financing solutions.
Apply now or contact us at 616-735-2393 to speak with a financing expert.
The content provided here is for informational purposes only. For personalized financial advice, please contact our commercial financing experts.