Equipment is financed through loans, true leases and lease-intended-as-security arrangements, and the legal characterization drives accounting, tax and priority.

True lease or security interest. The commercial code provides a test: a transaction creates a security interest if the term obligation is not subject to termination and one of several conditions holds, including that the term equals or exceeds the economic life of the goods, or the lessee has an option to become owner for nominal consideration.

Consequences. A lessor under a disguised security agreement must file a financing statement to perfect. Failure leaves it unsecured against the lessee’s other creditors and in bankruptcy — the classic and expensive error. Precautionary filings are routine for that reason.

Bankruptcy treatment. A true lease is assumed or rejected with cure; a secured loan is subject to cramdown and valuation.

Tax. Depreciation belongs to the owner, which follows the true lease characterization.

Key lease terms. Hell-or-high-water obligations making rent unconditional; disclaimer of warranties with assignment of manufacturer warranties; insurance and casualty allocation; return conditions and end-of-term options; and stipulated loss values.

Assignment. Lessors routinely assign rent streams to funders, and the hell-or-high-water clause is what makes that assignment financeable.