Which of the following constitutes the common set of lease types in equipment finance?

• A. Operating leases only.
• B. True leases, finance leases, and operating leases.
• C. Leasebacks, sales-leasebacks, and cross-border leases.
• D. Finance leases only.

Answer: (B)

In equipment finance, the common set of lease types is a three-part framework: true leases, finance leases, and operating leases. A true lease is structured so the lessor retains ownership and the associated risks and rewards, with the lessee primarily paying for the use of the asset and not necessarily assuming ownership. A finance lease, often treated as a capital lease in many frameworks, is designed so the lessee effectively assumes most ownership risks and rewards, and it tends to be reflected on the lessee’s balance sheet with the option or transfer of ownership at the end. An operating lease is typically shorter in term and does not transfer substantial ownership risks and rewards; the asset may stay off the lessee’s balance sheet, and payments are generally expensed as incurred. These three cover the main ways equipment financing arrangements are classified, making them the standard set. The other options mix in transaction structures (like leasebacks) or pick only one type, which doesn’t represent the broad, commonly used classification.