Business Loan Glossary: Key Terms Every Small & Medium-Sized Business Should Know
Navigating the world of business loans can be complex, especially for small and medium-sized businesses. Our comprehensive business loan glossary is here to help. Whether you're applying for a loan or managing finances, understanding key terms is crucial to making informed decisions. Explore definitions, explanations, and expert insights to simplify your business loan journey and empower your financial growth.
What Are Capital Leases?
Capital leases are like long-term rentals that companies use to buy important stuff like machinery or equipment.
Capital leases are like long-term rentals that companies use to buy important stuff like machinery or equipment. When a company signs a capital lease, it's like saying, "Hey, we're borrowing this thing for a while, but we're gonna own it eventually." So, even though they're not paying for the whole thing upfront, it still goes on their balance sheet as if they bought it outright.
Think of it as putting down a deposit on a house. Even though you haven't paid the full price yet, the house is still listed as an asset on your financial records because you're committed to buying it. With capital leases, it's the same idea. The equipment or machinery they're leasing becomes an asset, but it's also like having a debt because they're committed to paying for it over time.
To keep things clear, companies note this debt as a "Note Payable" on their balance sheet. It's a way of saying, "Hey, we owe this much money for the stuff we're leasing." So, capital leases are basically a way for companies to get what they need without having to fork over all the cash upfront.