Skip to main content
Glossary

ASC 842

Get a Free Quote Estimate my payment
Soft-pull, no credit impact 22 equipment categories 24-72hr decisions $0 cost to apply
Definition

ASC 842 is The current US GAAP standard requiring all leases over 12 months to appear on the lessee's balance sheet.

ASC 842 is the current US GAAP lease accounting standard, replacing FAS 13. Effective 2019 for public companies, 2022 for private companies. Internationally, IFRS 16 is the equivalent.

The big change

Before ASC 842: operating leases were off-balance-sheet. Lease payments appeared as operating expense; no asset or liability on the balance sheet.

Under ASC 842: nearly all leases over 12 months appear on balance sheet as a right-of-use (ROU) asset and a corresponding lease liability. Short-term leases (12 months or less) are still off balance sheet.

Operating vs finance lease (still distinct)

ASC 842 still distinguishes between operating and finance leases, but only on the income statement:

  • Operating lease: single line-item lease expense, straight-line
  • Finance lease: separate interest expense + depreciation expense (front-loaded total)

What it means for small businesses

If you prepare financial statements under GAAP (typical for businesses with bank covenants or investor reporting), every equipment lease over 12 months adds an asset and a liability to your balance sheet. This can affect financial ratios (debt-to-equity, current ratio) and may require renegotiating loan covenants.

Tax accounting is separate and did not change.

Practical impact on lease vs buy

ASC 842 reduced the “off-balance-sheet financing” advantage of operating leases. The lease vs buy decision now turns more on cash flow, tax position, and asset useful life than on balance-sheet appearance.

E
Editorial review by Ed Stapleton Jr. · Founder & Editor

Related terms

What this means in practice

Where ASC 842 shows up in the financing process

Most disputes between borrowers and lenders post-funding trace back to a term the borrower thought they understood but had not seen applied in their specific transaction. ASC 842 is one of the concepts that surfaces often enough to be worth understanding in advance.

The general definition above is broadly accurate. The lender-specific application is where the variation shows up. When the term appears in your funding documents, treat the documents as the source of truth and read carefully.

Common context where this comes up

The term shows up in three places in most equipment financing transactions. First, at the application stage, where the lender uses the concept to assess the deal. Second, in the funding documents, where it appears as a specific provision tied to the lender obligations or the borrower obligations. Third, at term end or in the event of restructure or refinance, where the term governs how the deal unwinds.

Knowing where the term shows up in your specific paperwork is the practical step that protects you. The funding documents are the source of truth: application materials and verbal conversations do not override what the signed documents say.

Where borrowers commonly get this wrong

Borrowers most often misread this term by treating it as boilerplate that follows market convention. In practice, lender-specific application varies enough that two transactions with the same labeled provision can produce different outcomes. Read your specific document language; do not assume convention.

How we structure financing

The financing structure that fits depends on the actual situation. Below are the most common decision branches we walk through with buyers, in plain "if X, then Y" form.

If You have a signed customer contract that the equipment will fulfill
Then Include the contract in the application. Contract-backed equipment finance typically prices 50 to 150 basis points better than capacity-build financing on equivalent credit.
If You are planning a Section 179 election close to year-end
Then Confirm placed-in-service date can be hit before December 31. Equipment ordered but not delivered/commissioned does not qualify for current-year §179, regardless of payment status.
If You are buying equipment that will be sub-rented or leased to others
Then Confirm at application. Sub-rental changes financing review analysis (revenue stability, asset risk) and may require a different program than owner-account use.
If You expect rate environment to improve in the next 12 to 18 months
Then Consider open pre-payment structures or a shorter term you can refinance later. The trade-off is the upfront cost; the refinance option becomes valuable if rates drop 100+ basis points.
If You have access to manufacturer captive promotional financing
Then Compare carefully against bank/independent lender rates. Captive promotions sometimes look better on stated rate but include adjustments (lower discount, required service bundles) that change the net economics.

Timeline expectations

What actually happens day-by-day, from application to equipment in service. Most buyers underestimate one or two of these steps; knowing them up front prevents surprises.

Placed-in-service date documentation
Same-day as commissioning
For Section 179 and depreciation purposes, the placed-in-service date is when the equipment is delivered, installed, and operationally ready. Document this date carefully for tax purposes.
CARB compliance verification (California)
1 to 5 business days
California off-road diesel equipment requires CARB compliance verification. The DOORS database lookup is same-day; full compliance certification for transferred equipment runs days.
Refinancing existing equipment loan
2 to 4 weeks
Refinancing requires payoff of existing loan, UCC release from prior lender, and funding of new loan. The UCC release coordination drives most of the timing.
Title transfer on titled equipment
1 to 4 weeks
Title transfer through state DMV adds weeks to closing on titled equipment. Out-of-state transfers run on the longer end. Title escrow accelerates this in many cases.
Wire transfer cutoff times
Typically 2-3pm PT / 5-6pm ET
After cutoff, wire processes next business day. Late-Friday signings often delay funding until Monday or Tuesday.
Lease end-of-term decision deadline
60 to 90 days before term end
Most lease structures require notice of intent (purchase, return, or renew) 60-90 days before term end. Missing the deadline can trigger automatic renewal or other default consequences.

Cost stack: what total ownership actually includes

The equipment purchase price is one line on the financed amount. The actual cost of ownership over the life of a asc 842 deal includes the items below. Buyers who only budget for the purchase price often hit cash-flow surprise within the first 12 months.

  • UCC-1 filing fees. $5 to $84 depending on state. Paid at filing; some lenders absorb, some pass to borrower.
  • Equipment purchase price. Base equipment price as quoted by the dealer. Negotiable, especially on used equipment and end-of-quarter new equipment.
  • Sales or use tax. State and local sales tax on the equipment. Rolls into financed amount in most states. Manufacturing and qualifying exemptions reduce or eliminate this in many states.
  • Insurance premiums. Commercial equipment insurance with lender named as loss payee. Annual premiums run 1 to 5 percent of equipment value depending on coverage and equipment category.
  • Installation and commissioning. Site preparation, electrical, plumbing, leveling, calibration, and operational commissioning. Runs 5 to 25 percent of equipment price depending on equipment category.
  • Storage and security infrastructure. Indoor storage, security systems, and theft-prevention measures. Particularly important for landscape, construction, and small equipment frequently stored outdoors and at job sites.
  • Extended warranty or service contract. Optional but common. Annual cost runs 5 to 15 percent of equipment price on production equipment, 1 to 3 percent on commercial vehicles. Financeable with the equipment.
  • Late payment fees and penalties. Late fees of 5 to 10 percent of payment if more than 10 days late. Default interest of 4 to 6 points may apply. Worth knowing before signing.

Authoritative sources

The rate ranges, structures, and program details on this page are informed by our internal financing book and the public industry resources below. We link out so you can verify any specific claim or go deeper.

Ready for real numbers on your equipment? 3 minutes · soft pull · no credit impact
Get a Free Quote Estimate my payment
E
Reviewed by

Ed Stapleton Jr.

Founder & Editor

Ed Stapleton Jr. is a serial entrepreneur who has started or acquired over a dozen businesses. He founded Fund My Equipment as the resource he wished he had along the way.

Equipment financing in 3 minutes

Get a real quote on your equipment

Soft-pull prequalification across 22 equipment categories. No credit impact. Decisions in 24-72 hours.

Start My Application Estimate my payment
No credit impact No phone-spam Free to apply

Last reviewed: . Machine-readable summary.

Equipment financing in 3 minutes

Ready when you are

Soft-pull prequalification. No credit impact. Decisions in 24-72 hours.

No credit impact No phone-spam Free to apply
Start My Application Estimate my payment