Final answer:
In the context of leases, to classify as a direct financing or sales type lease, a lessor must ensure the lessee fulfills income declaration forms and passes a credit check. Additionally, a cosigner or collateral might be required for additional security.
Step-by-step explanation:
To classify a lease as either a direct financing or a sales type lease, a lessor must meet two additional criteria related to the financial capital market and the mechanisms of credit. One important requirement is that prospective borrowers, including lessees in this case, provide substantial proof of their income sources.
This is often done by filling out forms that detail income sources so the lessor can assess the lessee's ability to make lease payments.
Additionally, like banks in the financial capital market, lessors may conduct a credit check to evaluate the lessee's past borrowing and repayment history. In some cases, particularly when the creditworthiness of the borrower (or lessee) is in question, the lessor might require additional security.
This can take the form of a cosigner, someone who legally pledges to repay the lease obligations if the lessee defaults, or collateral, such as property or equipment, which the lessor has the right to seize and sell if the lease payments are not made.