Time limit and other considerations may be made, depending primarily on the size of the transaction and situation. American Leasing has written over a dozen leases in the last few years with certificate of deposits. These are generally leases where the lessee qualifies for a smaller lease, but wants a large lease and the company is often moving to a major plateau. The lessee obtains a letter of credit through their bank. It may come from their bank relationship, meaning accounts receivable, other loans, or personal guarantees of value to the bank.
Costs are normally between one to two percent per year.
The letter of credit may also be in a step manner, meaning each year the dollar amount decreases as the lease is paid out. It is most common for the letter of credit to cover the entire stream of payments, not just the cost of the equipment. We like letters of credit more than a cash deposit, but ranked number two because in the leasing business, additional security deposits are more common. In this instance, the stock is most common physically held by the lessor or its bank or stock broker. There are instances when the stock is held by a third party.