A leveraged lease or leased lender is a
lease
A lease is a contractual arrangement calling for the user (referred to as the ''lessee'') to pay the owner (referred to as the ''lessor'') for the use of an asset. Property, buildings and vehicles are common assets that are leased. Industrial ...
in which the
lessor
Lessor may refer to:
* Lessor (leasing), the owner of leased property or the agent authorized on the owner's behalf
* Lessor, Wisconsin, a town in U.S.A.
* Lessor Township, Minnesota, U.S.A.
See also
* Lesser
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puts up some of the money required to purchase the
asset
In financial accountancy, financial accounting, an asset is any resource owned or controlled by a business or an economic entity. It is anything (tangible or intangible) that can be used to produce positive economic value. Assets represent value ...
and borrows the rest from a
lender
A creditor or lender is a party (e.g., person, organization, company, or government) that has a claim on the services of a second party. It is a person or institution to whom money is owed. The first party, in general, has provided some property ...
. The lender is given a senior secured interest on the asset and an assignment of the lease and lease payments. The lessee typically makes payments directly to the lender as the lease payments are assigned to the lender.
The term may also refer to a lease agreement wherein the lessor, by borrowing funds from a lending institution, finances the purchase of the asset being leased.
The lessor pays the lending institution back by way of the lease payments received from the lessee. Under the loan agreement, the
lender
A creditor or lender is a party (e.g., person, organization, company, or government) that has a claim on the services of a second party. It is a person or institution to whom money is owed. The first party, in general, has provided some property ...
has rights to the asset and the lease payments if the lessor defaults.
In this type of lease, the lessor provides an
equity
Equity may refer to:
Finance, accounting and ownership
* Equity (finance), ownership of assets that have liabilities attached to them
** Stock, equity based on original contributions of cash or other value to a business
** Home equity, the dif ...
portion (often 20% to 50%) of the equipment cost and lenders provide the balance on a
nonrecourse debt Nonrecourse debt or a nonrecourse loan (sometimes hyphenated as non-recourse) is a secured loan (debt) that is secured by a pledge of collateral, typically real property, but for which the borrower is not personally liable. If the borrower defaul ...
basis. The lessor receives the tax benefits of ownership.
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Credit
Leasing