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The effective practice of equipment leasing requires in-depth knowledge of a wide variety of subjects. All applicants for CLP certification must, at a minimum, be well versed in the following body of knowledge regarding the equipment leasing industry. For certification purposes, however, the candidate need only demonstrate that he/she has mastered the essentials of equipment leasing.
The examination questions will be based on concepts and knowledge basic to effective equipment leasing. The areas of knowledge include:
You can also download a copy of the
Body of Knowledge in PDF format by clicking here.
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HISTORY OF LEASING
- Industry Standards and ‘Code of Ethics’
- Ancient applications of leasing
- Recognition of leasing under English Common Law
- Beginning of leasing in the United States
- Early U.S. leasing, leasing in the transportation industry
- U.S. leasing by “captives”
- WW II era leasing activity
- General trends in the development of modern leasing
- Bank involvement in leasing
- Development of accounting standards for leasing
- The evolution and content of tax rules governing leasing
- Government involvement in the development and growth of leasing
- Use of leasing in today’s economy
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CLASSIFICATION AND TERMINOLOGY IN LEASING
- Leasing defined
- Market divisions within the leasing industry
- Approaches/views towards a lease transaction
- Accounting view
- Tax view
- Legal view
- Types of leases
- Single investor
- Captive
- Leveraged
- The broker’s role in the lease transaction
- Why leasing exists – reasons for its viability in the economy
- Basic elements of a lease transaction
- Basis for a tax view of a lease
- IRS Revenue Ruling 55-540
- IRS Revenue Procedure 75-21
- Basis for an accounting view of a lease transaction
- Basis for a legal view of a lease transaction
- Basic definitions
- Safe Harbor Lease
- Sale-Leaseback
- Section 38 property
- Recourse vs. non-recourse
- “At risk” rules
- Bundled lease
- Close-end lease
- Collateral
- Gross lease
- Full pay-out lease
- Guidelines lease
- Net lease
- Money over money transaction
- Open-end lease
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MARKETING
- Potential market for leasing in today’s economy
- Development of a marketing plan
- Elements of a marketing plan
- Choosing business type
- Choosing industry type
- Choosing equipment type
- Choosing a geographic area
- Defining the customer
- Identifying sources of funds
- Identifying available programs
- Limitations
- Product availability
- Marketing strategies
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SALES
- Definition of sales effort
- Purpose of sales within the lease organization
- Elements of the sales process
- Overcoming objections
- Pre-emptive principle
- Using questions to determine the real objection
- Closing the deal
- Closing techniques
- The sales proposal
- Defining the contents of the sales proposal
- The salesman’s main tool – knowledge
- Financial statements
- Credit requirements and criteria
- Credit reporting and credit report data
- Tax returns
- Business structure and operation
- Lease pricing
- Lease structuring
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LESSOR-VENDOR RELATIONSHIPS
- Vendor defined
- The relationship of the vendor to a lessor
- The role of the vendor in a leasing transaction
- Traits to look for in a vendor
- Purpose of vendor programs
- Elements of a vendor program
- Elements of a vendor transaction
- Potential problems with a vendor transaction
- Potential vendor frauds
- The role of the vendor invoice in the transaction
- Money and the vendor
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LEASE PRICING
- Time use of money concept
- Cash flow diagrams
- Structuring of a payment
- Principal plus interest
- Amortizing payment
- Basic elements of a lease transaction
- Term
- Number of payments
- Number of advance payments
- Equipment cost
- Indirect costs
- Lease payment
- Residual value
- Security Deposit
- Lessor’s yield
- Other fees/costs
- Understanding the transaction
- Application of the cash flow diagram to the lease transaction
- Mathematical computation for a lease transaction
- Solving for any unknown element in the transaction
- Determining the rate factor for a lease transaction
- Computing unusual payment structures
- Skip payments
- Step payments
- Hi-low payments
- Seasonal payments
- Definitions of terms
- Internal rate of return
- Stream rate
- Basis points
- Points
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LEASE VS. BUY DECISION MAKING
- Selling the lease vs. buy decision
- Knowledge of customer
- Motivations
- Concerns
- Intended use of equipment
- Personality
- Company decision making process
- Financial situation
- Tax situation
- Knowledge of Product (leasing)
- Rates, yields, time use of money
- Financial statement impacts of leasing
- Tax impacts of leasing
- Convenience considerations
- Other implication of using leasing
- Options for acquisition/use of equipment by lessee
- Elements of the lease vs. buy decision
- Equipment considerations
- Budget and decision making
- Conveniences
- Financial statement impacts
- Tax consequences
- Cash flow issues
- Costs
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CREDIT PROCESS AND FINANCIAL STATEMENTS
- Role and purpose of credit
- Assessment of credit risk
- Lessor credit information—what is required
- Definition of legal entities
- Sole proprietorship
- Partnership
- Limited partnership
- Joint venture
- Corporation
- Sub “S” corporation
- “C” corporation
- Non-profit corporation
- Professional corporation
- Limited Liability Corporation
- Association
- Trust
- Municipality
- Federal Government
- Elements of small-ticket lease credit decision making
- Elements of mid-ticket lease credit decision making
- Elements of large-ticket lease credit decision making
- Credit scoring
- Credit enhancements
- Yield
- Deposits
- Advance Payments
- Structuring of the lease
- Term adjustment
- Personal guarantees
- Other guarantees
- Additional security
- Contract terms
- Credit life/health
- Vendor guarantees
- Fees and charges
- Cancellation/non-renewal penalties
- Bundled services
- Vendor discounts
- Co-lessees
- Structuring the lease transaction
- Effects of security deposits and other advance payments on a lease transaction
- Elements of a financial statement
- Balance Sheet
- Statement of Operations (Income Statement)
- Statement of Changes in Equity
- Statement of Cash Flows
- Notes to the Financial Statement
- Elements of a Balance Sheet
- Elements of a Statement of Operations
- Elements of a Statement of Changes in Equity
- Elements of a Statement of Cash Flows
- Elements of the Notes to a Financial Statement
- Types and quality of financial statements
- Internal statements
- CPA prepared statements
- Compiles statements
- Reviewed statements
- Audited statements
- Analysis of financial statement information
- Financial statement ratios
- Purpose of ratios
- 12 Operating ratios
- Quick ratio
- Current ratio
- Debt to equity ratio
- Return on equity ratio
- Net sales to inventory ratio
- Receivables turnover ratio
- Payables turnover ratio
- Net sales to working capital
- Profit on sales
- Inventory turnover
- Operating expense ratio
- Accounts receivable turn day ratio
- Importance of understanding financial statements
- Sales process
- Credit process
- Role of personal financial statements in the credit process
- When to obtain
- When relevant to the credit decision
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LEASING LAW
- Basis for U.S. leasing law
- Statute of Frauds
- Bundle of rights concept
- Legal definition of a lease
- Rights associated with a lease
- Warranties
- Express warranties
- Implied warranties
- Article 2-A of the UCC code
- Requirements to comply
- Effects of meeting requirements
- Exclusion of warranties under Article 2-A
- Exclusion of warranties under contract terms
- Definitions
- After acquired title
- Novation
- “Jointly and severally liable”
- Terminal Rental Adjustment Clause (TRAC)
- Bankruptcy
- Types of bankruptcy
- Chapter 7
- Chapter 9
- Chapter 11
- Chapter 12
- Chapter 13
- Payment priorities in bankruptcy
- Bankruptcy terminology
- Date of filing the petition
- Automatic Stay
- Liquidation
- Proof of claim
- Bar date
- Relief from stay
- Preferences
- Adequate protection
- Plan
- Cram Down
- Confirmation
- Executory contract
- Secured creditor
- Deficiency
- Re-affirmation
- Treatment of a lease in bankruptcy
- Chapter 7
- Chapter 11
- True lease treatment
- Secured transaction treatment
- Unsecured transaction treatment
- Requirements for registration as a foreign corporations
- Definition of “doing business”
- Effects of non-registration
- Requirements to meet tax obligations regardless of registration
- Sales and use taxes
- Property taxes
- Income taxes
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LEASE DOCUMENTATION
- Parties to a contract
- Elements of the lease documentation file
- Lease documents
- Lease contract
- Schedules and exhibits
- Delivery and Acceptance
- Guarantees
- Corporate resolutions
- Real estate waivers
- Fixture filings
- UCC filings
- Additional collateral agreements
- Purchase order
- Cross default agreement
- Invoice
- Funding/advance funding agreement
- Purchase options
- Other miscellaneous documents
- Forms of contract
- Standard lease agreement
- Master lease agreement
- Plain language agreement
- Elements & provisions of a lease contract
- Identification of the parties
- Identification of the vendor/supplier
- Equipment location
- Terms
- Purpose/intent of agreement
- Acceptance of equipment by lessee
- Disclaimer of warranties
- Article 2-A provisions
- Assignment
- Rental commencement and other payments
- Non-cancellation provisions
- Disclaimer of agency
- Lessee/Lessor signatures
- Choice of law/venue
- Security deposits
- Limited amendments, power of attorney
- Provisions for location and use of equipment
- Ownership provisions
- Renewal provisions
- Agreements for insurance, provisions for loss and/or damage
- Insurance requirements
- Responsibility for liens and tax liability regarding equipment
- Lessee indemnification of lessor
- Lessor assignment, waiver of defense clause
- Service charges, late fees, interest
- “Time of essence” provisions
- Default provisions
- Cross default clause
- Remedies to default
- Provisions regarding multiple lessees
- Agreement regarding enforcement expense
- Modifications, changes, severability
- Attachments, schedules & exhibits
- Equipment lease guarantee
- Purpose of the guarantee
- Use in the lease transaction
- Elements of the equipment lease guarantee
- Parties to the guarantee
- Guaranateeable interest
- The guarantee made by the guarantor
- Guarantor primarily responsible under the contract
- Waiver of guarantor’s rights
- Deliver & Acceptance
- Purpose of the Delivery & Acceptance
- Use of the Delivery & Acceptance
- Elements of the Delivery & Acceptance
- Acceptance and representations regarding equipment
- Instructions to pay vendor
- Unconditional nature of acceptance
- Corporate resolution
- Purpose of the Corporate Resolution
- Use of the Corporate Resolution
- Resolution to lease
- Resolution to guarantee lease
- Elements of the Corporate Resolution
- Authority of corporation to enter into lease and/or guarantee
- Identification of authorized signers for the corporation
- Fixture Filings
- Purpose of a Fixture Filing
- Use of the Fixture Filing
- Form used for Fixture Filings
- Filing requirements
- Protections offered from a fixture filing
- Real Estate Waivers
- Purpose of the Real Estate Waiver
- Use of the Real Estate Waiver
- Form of the Real Estate Waiver
- Landlord Waiver
- Lender’s Waiver
- Filing requirements for a Real Estate Waiver
- Elements of the Real Estate Waiver
- Identification of the parties
- Legal description of the property
- Statement of consideration
- Intent and agreement on the nature of the “fixture” covered by the Real Estate Waiver
- Waiver of certain rights by Landlord/Lender
- Permission to reclaim “fixture” upon default by Lessee
- Signature acknowledged by a Notary Public
- UCC Filings
- Purpose of UCC filings in the lease transaction
- Form of the UCC filing
- Filing requirements
- Filing location
- Timeliness
- Fees
- Additional Collateral Agreements
- Parties to the agreement
- Purpose of an additional collateral agreement
- Use of the additional collateral agreement
- Form for the agreement
- Requirement to perfect interest
- Real Estate as Additional Collateral
- Forms of security
- Deed of Trust
- Mortgage
- Assignment of interest
- Requirements for filing, perfecting interest
- Anti Deficiency laws
- Invoice
- Parties to the invoice
- Purpose of the invoice
- Content of the invoice
- Use of the invoice
- Form of the invoice
- Purchase Order
- Parties to the purchase order
- Purpose of the purchase order
- Content of the purchase order
- Representations required by vendor
- Disclaimers and conditions set by lessor
- Use of the purchase order
- Form of the purchase order
- Funding/advance funding agreement
- Parties to the agreement
- Purpose of the agreement
- Use of the agreement
- Contents of the agreement
- Potential dangers of use
- Purchase/renewal options
- Parties to the option
- Types of options
- Purchase option
- Call option
- Put option
- Renewal option
- Use of the option
- Form of the option
- Potential effects of the option in the determination of the nature of the agreement
- True lease treatment
- Treatment as secured transaction
- Lessor liability issues
- Potential liabilities of lessor
- As owner of the equipment
- As financier of equipment
- Liability protections for lessor
- Contractual provisions
- Insurance
- Business practices
- The issue of Agency
- Equipment in inventory/repossessed equipment
- Lessor’s status in sale or lease
- Sale to end-user
- Wholesale disposal
- Lessor liabilities
- Possible lessor protections
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COLLECTIONS
- Purpose of collections
- Characteristics of a good collector
- Signs of delinquency in a lease
- Typical reasons for delinquency
- Overlooked due date
- Lease terms misunderstood
- Equipment problems
- Payment priorities
- Seasonal slow downs
- Catastrophic occurrences
- Internal accounting issues
- Personal financial difficulties
- Chronic slow pay
- Failing business
- Fraud
- Types of fraud
- Warning signs of fraud
- Fraud prevention techniques
- Bankruptcy
- Progression of a delinquency and lessor actions
- Initial contact
- Second and subsequent contacts
- Formal collections
- Repossession of equipment
- Voluntary return by lessee
- Ex Parte
- Replevin action
- Claim and delivery
- Litigation
- Venue issues
- Obtaining a judgement
- Registration of foreign judgement
- Action for fraud
- Litigation in bankruptcy
- Course of action on a stated “no-pay”
- Written records
- Importance
- Use
- Court evidence
- History of account
- Management tool
- Possible collection remedies
- Partial payments
- Extensions
- Changes in due dates
- Recovery agreements
- Forbearance program
- Modifications
- Transfer and assumption
- Other reasonable remedies
- Alternative ways to make lessee contact
- Types of repossession
- Voluntary return by lessee
- Court orders and enforced repossession
- Self-help repossession
- Potential dangers to lessor
- Commercially reasonable sale
- Elements of a commercially reasonable sale
- Notice
- Timing issues
- Advertisement
- Who may purchase at sale
- Application of sale proceeds
- Lessor rights to recover deficiency
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LEASE COMPANY MANAGEMENT
- Structure/organization of a lease company
- Key management
- Management Issues
- Administration
- Organizational structure
- Human resource issues
- Efficiency
- Financial Management
- Budgeting
- Cash flow
- Financial Statements
- Profitability
- Cost of Capital
- Reserves
- Managing Cash flows
- Credit Decision Making
- Impact on debt/financing
- Establishing company policy and criteria
- Impact on marketing efforts
- Impact on portfolio composition and performance
- Impact on profitability
- Timing issues
- Lessor servicing
- Third-party contract servicing
- Personal property tax issues
- Sales tax reporting
- Internal systems and reporting issues
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SOURCES OF FINANCING FOR A LEASING COMPANY
- Sources Include
- Bank and/or Financial Institution
- Finance Company
- Private Loans
- Other Lease Companies
- Pension Funds
- Insurance Companies
- Common Funding Methods
- Internal Funding
- Brokerage
- Discounting
- Definition of “discounting”
- Elements of the discount transaction
- Mathematical calculations for the discount transaction
- Timing adjustments
- Economics of the discount transaction
- Effects of discounts, holdbacks, or other reserves
- Lease Packaging
- Lease package defined
- Elements of a lease package
- Who determines the content
- Who determines the structure
- The package “narrative”
- The package “request”
- Financial data analysis as part of the lease package
- Tailoring the package to the requirements of the funder
- Equity and Debt
- Sale of company interest
- Common stock
- Preferred stock
- Issues of company control
- Shareholder issues
- Securities law compliance
- Cost of funds
- Private Investors
- Transactional sales
- Portfolio Sales
- Determination of price and terms
- Possible effects on remaining portfolio
- Marketing considerations
- Public Debt Offering
- Corporate bonds
- Other debt instruments
- Securities law compliance
- Limited partnerships/trusts
- Asset Securitization
- Nature of the securitization transaction
- Asset backed financing
- Structure of the securitization transaction
- Pay through structure
- Pass through structure
- Parties to a securitization and their respective roles
- Lessee
- Lessor
- Attorney
- Outside auditors
- Rating agencies
- Outside servicer
- Appraiser
- Investment Bankers
- Trustee
- Investor
- Lessor motivations and benefits in a securitization
- Potential lessor problems in a securitization
- Servicing obligations
- Tax considerations
- Sale vs. loan treatment of the transaction
- Book treatment
- Tax treatment
- Personal property tax considerations
- Sales and use tax considerations
- Recourse vs. non-recourse structure/UNL
- Credit enhancements
- Economics of the securitization to the lessor
- Cost of funds
- Transactional costs
- Securitization strategies for the lessor
- Short term benefits and detriments
- Long term benefits and detriments
- Securities law compliance and liability
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FINANCIAL & TAX ACCOUNTING FOR LEASES
- Definitions
- Fair market value
- Fair rental value
- Bargain purchase option
- Bargain renewal option
- Economic life
- Estimated residual value
- Unguaranteed residual value
- Lease Term
- Non-cancelable lease
- Minimum lease payments receivable
- Lessor’s implicit rate
- Calculation of lessor’s implicit rate
- Lessee’s incremental borrowing rate
- Initial direct costs (IDC)
- Contingent rentals
- Accrual basis accounting
- Cash basis accounting
- Aging the receivables/payables
- Non-performing account
- Reserves
- Amortization
- Cash flow
- Appreciation
- Depreciation
- Depreciation methods
- Straight line
- Double declining balance
- 150% declining balance
- Sum of the years
- MACRS
- Book Depreciation
- Tax Depreciation
- Inventory valuation methods
- Liquidate
- Negative cash flow
- Working capital
- Capitalized cost
- Compensating balance
- Tax accounting methods
- Book accounting methods
- Sales and use taxes
- Lessor liability
- Reporting requirements
- Payment options
- Liability on residual sale
- Liability on assignment or lease by lessor
- Personal Property Taxes
- Assessment process
- Lessor liability for personal property taxes
- Historic view of FASB 13
- Provisions of FASB 13
- Historic view of IRS Revenue Ruling 54-540 and Revenue Procedure 75-21
- Provisions of Revenue Ruling 55-540
- Provisions of Revenue Procedure 75-21
- Book accounting for a capital lease
- Determination of accounting treatment through FASB 13 rules
- Calculation of “90%” rule
- Lessor’s treatment using lessor’s implicit rate
- Lessee’s treatment using incremental borrowing rate
- Entering the capital lease on the lessor’s balance sheet
- Entering the payments received from the lessee on a capital lease on the lessor’s balance sheet and operating statement
- Entering the capital lease on the lessee’s balance sheet
- Entering the payments paid by the lessee on the lessee’s balance sheet and operating statement
- Tax accounting for a non-tax (capital) lease
- Determination of tax treatment through Revenue Ruling 55-540 and, as applicable, Revenue Procedure 75-21
- Entering the non-tax lease on the tax books of the lessor
- Entering the payments received from the lessee on the tax books of the lessor
- Entering the non-tax lease on the tax books of the lessee
- Entering the payments paid by the lessee on the tax books of the lessee
- Book accounting for an operating lease
- Determination of accounting treatment through FASB 13 rules
- Calculation of “90%” rule
- Lessor’s treatment using lessor’s implicit rate
- Lessee’s treatment using incremental borrowing rate
- Entering the operating lease on the lessor’s balance sheet
- Entering the payments received on a operating lease on the lessor’s balance sheet and operating statement
- Entering the operating lease on the lessee’s balance sheet
- Entering the payments paid by the lessee on the lessee’s balance sheet and operating statement
- Tax accounting for a tax (operating) lease
- Determination of tax treatment through Revenue Ruling 55-540 and, as applicable, Revenue Procedure 75-21
- Entering the tax lease on the tax books of the lessor
- Entering the payments received from the lessee on the tax books of the lessor
- Entering the tax lease on the tax books of the lessee
- Entering the payments paid by the lessee on the tax books of the lessee
- Reasons for differences in treatment of a lease between book and tax
- Accounting treatment
- Different rules between tax and book
- Accounting methods
- Difference in book accounting treatment between lessee and lessor
- Lessor’s implicit rate vs. lessee’s incremental borrowing rate
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Portfolio Management
- Issues related to portfolio management
- Portfolio quality
- Residual realization
- Financial statement integrity
- Maintenance of financial relationships
- Competition
- Insurance issues
- Personal property tax exposure
- Marketing and sales efforts and requirements
- Quality of accounting data
- Recourse exposure
- Delinquencies
- Concentrations
- Asset management and disposition
- Profitability
- Projections for the future
- Analysis of the lease portfolio
- Weighted averages
- Computing weighted averages
- Determining the portfolio yield
- Determining the portfolio term
- Weighted average term
- Ramifications of portfolio term on portfolio management and lease company management issues
- Analysis of portfolio aging
- Residual valuations
- Tracking actual residual realizations
- Loss reserves
- Methods for determining loss reserves
- Portfolio concentrations
- Types of concentrations
- How concentrations may occur
- How concentrations may be avoided
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Government Leasing
- Definition of “government”
- Municipal
- Federal
- Quasi-Federal
- Prime Contractors
- Indian tribes and nations
- Not-for-profit entities
- Public and private activities
- Municipal government lease documentation
- Form of lease agreement
- Bank qualification letter
- Legal opinion
- Proof of authority
- U.S. form 8038G or 8038GC
- UCC-1
- Statement of essential use
- Acceptance certificate
- Insurance documentation
- Delivery and Acceptance
- Other miscellaneous documentation
- Federal Government lease documentation
- Purchase order
- Addendum to purchase order
- Inspection, receiving & acceptance report/certificate
- Vendor documentation
- Special terms and conditions in government leases
- Non-appropriations clause
- Non-Substitution clause
- Termination at the convenience of the government
- Base closure clause
- Contract termination clause
- Benefits of government leasing
- Tax benefits
- Municipal
- Indian tribes and nations
- Federal Government
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