CLFP Chapter 8 - Funding & Operations Exam Questions Fully Solved Latest Update 2025
Common methods of Funding/Sources of Capital - Answers Internal Funding
Brokering
Discounting
Recourse Debt
Asset Securitization
Internal Funding - Answers Many banks own their own leasing companies
These subsidiaries are often funded entirely by the parent financial institution
Bank will typically charge the leasing subsidiary an internal interest rate
Brokering - Answers intermediary between the lessee and the funding source
Brokering Advantages - Answers Little to no economic risk, except for reps and warranties int he broker
agreement
No servicing platform required
Brokering Disadvantages - Answers Broker's profit is limited to the upfront commission paid on the
transaction
Servicing relationship is transferred to funding source
Discounting - Answers Lessor sells remaining rents of a lease to a funding source
*Lessor retains ownership of the equipment ( and IS RESPONSIBLE PARTY)
Value of the rents is determined by discounting the future rents to their present value
may be with or without recourse
Discounting with recourse - Answers the purchaser of the rental stream has full or partial recourse
against the lessor in case of a lessee default
Discounting Advantages - Answers Lower cost of funds
Greater flexibility and more control
Brand Identity
Increased revenue (residual, interim rent)
Lessor retains customer relationship
, Discounting Disadvantages - Answers Significant reps and warranty clauses
Lessor may retain some or all of the risk
May require working capital
Upfront profit could be less than a brokered deal
*When DISCOUNTING a stream on a non-recourse basis, the lessor typically represents and warrants: (4)
- Answers Lease is Valid and enforceable
Equipment has been delivered
Lessor has title of the equipment
UCC filing has been made in a timely matter
Recourse Debt - Traditional credit facility - Answers 1. Used to fund leases to be held in the lessor's
portfolio on the lessor's balance sheet
2. Terms are typically 1-2 years and typically renew
3. Terms are not tied to the duration of the underlying leases in the portfolio
Recourse Debt - Warehouse Line - Answers 1. Used to temporarily fund leases or "warehouse" them
until a final funding source is used
2. Deals may be held on the line from 3-9 months
Recourse Debt - Term Debt - Answers 1. Provided by a bank and used for long term basis
2. The duration of the loan is often tied to the maturity of the underlying leases
3. The interest rate is typically fixed at commencement
4. Lender files a lien against the pool of assets securing the loan
Recourse Debt - Subordinated Debt - Answers 1. Is junior and ranks behind (gets paid back after other
are whole) any senior Traditional Credit facility, Warehouse line or Term Debt in case of bankruptcy or
liquidation
2. Higher interest rate to COMPENSATE FOR RISK
Discounting should be evidenced in what lease documentation? - Answers Valid and binding lessee and
guarantor signatures
Equipment delivery and acceptance
UCC - perfect title
Common methods of Funding/Sources of Capital - Answers Internal Funding
Brokering
Discounting
Recourse Debt
Asset Securitization
Internal Funding - Answers Many banks own their own leasing companies
These subsidiaries are often funded entirely by the parent financial institution
Bank will typically charge the leasing subsidiary an internal interest rate
Brokering - Answers intermediary between the lessee and the funding source
Brokering Advantages - Answers Little to no economic risk, except for reps and warranties int he broker
agreement
No servicing platform required
Brokering Disadvantages - Answers Broker's profit is limited to the upfront commission paid on the
transaction
Servicing relationship is transferred to funding source
Discounting - Answers Lessor sells remaining rents of a lease to a funding source
*Lessor retains ownership of the equipment ( and IS RESPONSIBLE PARTY)
Value of the rents is determined by discounting the future rents to their present value
may be with or without recourse
Discounting with recourse - Answers the purchaser of the rental stream has full or partial recourse
against the lessor in case of a lessee default
Discounting Advantages - Answers Lower cost of funds
Greater flexibility and more control
Brand Identity
Increased revenue (residual, interim rent)
Lessor retains customer relationship
, Discounting Disadvantages - Answers Significant reps and warranty clauses
Lessor may retain some or all of the risk
May require working capital
Upfront profit could be less than a brokered deal
*When DISCOUNTING a stream on a non-recourse basis, the lessor typically represents and warrants: (4)
- Answers Lease is Valid and enforceable
Equipment has been delivered
Lessor has title of the equipment
UCC filing has been made in a timely matter
Recourse Debt - Traditional credit facility - Answers 1. Used to fund leases to be held in the lessor's
portfolio on the lessor's balance sheet
2. Terms are typically 1-2 years and typically renew
3. Terms are not tied to the duration of the underlying leases in the portfolio
Recourse Debt - Warehouse Line - Answers 1. Used to temporarily fund leases or "warehouse" them
until a final funding source is used
2. Deals may be held on the line from 3-9 months
Recourse Debt - Term Debt - Answers 1. Provided by a bank and used for long term basis
2. The duration of the loan is often tied to the maturity of the underlying leases
3. The interest rate is typically fixed at commencement
4. Lender files a lien against the pool of assets securing the loan
Recourse Debt - Subordinated Debt - Answers 1. Is junior and ranks behind (gets paid back after other
are whole) any senior Traditional Credit facility, Warehouse line or Term Debt in case of bankruptcy or
liquidation
2. Higher interest rate to COMPENSATE FOR RISK
Discounting should be evidenced in what lease documentation? - Answers Valid and binding lessee and
guarantor signatures
Equipment delivery and acceptance
UCC - perfect title
