Wednesday, April 15, 2015

Financing your Fire Truck - What to Expect #5

If you're about to finance a new fire truck - whether by lease purchase, loan, or bond - it helps to know what to expect.


It can be daunting to wade into a world you don't know.  We'll help you be prepared for the financing experience.

Here's what to expect #5 - Standard terms and conditions

It's easy to focus so much on the dollars and cents that you miss your responsibilities under a fire truck lease purchase agreement.  And some unscrupulous lenders will even use the "fine print" to take more money from you.  So, the deal you think you got doesn't exist.

Here is what a standard fire truck lease purchase will include:

  1. Insurance requirements.  You will have to provide insurance on the fire truck at all times. Insurance to both to repair the truck after an accident and liability if the fire truck causes damages to other people or property.
  2. Tax exempt language.  Most fire truck lease purchases are completed using low, tax-exempt interest rates.  And the IRS has specific rules about what qualifies for these lower rates.  You should expect to see some language about your use and operation of the fire truck that ensures the financing remains qualified.
  3. Declarations about you.  Only certain entities qualify for low, tax-exempt interest rates.  You should expect to certify that you meet these requirements.
  4. Default language.  You should expect to see a list of things that will cause the lease purchase to default, or violate, the contract.  Most common types of default are non-payment, lack of insurance, unrepaired damage, or losing the tax-exempt status. And there should be a just process of correcting the default such as a payment grace period before your truck can be repossessed, for example.
  5. Payments.  There should be language setting forth exactly how much you pay each payment, what your remaining balance is, how much interest you are paying, and what is the amount if you want to pay off the truck early.  This is the area that most unscrupulous lenders will use to grab more of your money so pay particular attention to these clauses in your contract.

Summary

Most fire truck lease purchase terms and conditions are common sense.  But I talk with departments who have  contracts with very costly and difficult terms at least once a week.  And they can't get out of them. So, pay close attention to what you are agreeing to before you sign.

Stay safe!
John R. Hill
President
First Bankers

Wednesday, April 8, 2015

Financing your Fire Truck - What to Expect #4

If you're about to finance a new fire truck - whether by lease purchase, loan, or bond - it helps to know what to expect.


It can be daunting to wade into a world you don't know.  We'll help you be prepared for the financing experience.

Here's what to expect #4 - There are legal rules to follow

Most fire trucks are financed using tax-exempt financing, which means lower borrowing rates.  Just being a tax-exempt entity doesn't allow you to qualify for tax-exempt financing.  There are a specific set of IRS rules to follow to become "qualified".  If you miss something or do something wrong, you can be deemed "unqualified", and pay a higher interest rate and perhaps taxes and penalties to the IRS.

Beyond the IRS, your state may have rules to follow before you can spend and borrow using tax generated revenues.  Each state is different and sets different rules to follow.

Summary

The rules are too in-depth to discuss in this article.  But the point is to be prepared that there is a legal process to follow when financing a fire truck and you should be prepared to follow it.  Failure to do so may come at a high cost to your fire department.

Stay safe!
John R. Hill
President
First Bankers

Wednesday, April 1, 2015

Financing Your Fire Truck - What to Expect #3

If you're about to finance a new fire truck - whether by lease purchase, loan, or bond - it helps to know what to expect.


It can be daunting to wade into a world you don't know.  We'll help you be prepared for the financing experience.

Here's what to expect #3 - Talk about your goals and situation

Any reputable fire truck financier will try to help you, not just take your order.

What that means is that they will listen to your goals, concerns, and constraints and try to come up with a better idea. So, don't start a conversation with a question like: 

What's the rate on a 10 year loan? (You can read why this is a bad question here)

Instead, here are some good things to be ready to talk about:

  • How much you can afford for a payment each year
  • Any potential changes in your future revenues or expenses
  • When you expect to buy your next fire truck
  • When you receive your money each year (all at once, monthly, twice a year, etc.)
  • Any specific purpose for savings beyond normal rainy day funds

Summary

When you are prepared to have a constructive conversation about your goals and situation, you will save a lot of money on fire truck financing.  You will also ensure that you are financially stronger.

Stay safe!
John R. Hill
President
First Bankers

Wednesday, March 25, 2015

Financing Your Fire Truck - What to Expect #2

If you're about to finance a new fire truck - whether by lease purchase, loan, or bond - it helps to know what to expect.


It can be daunting to wade into a world you don't know.  We'll help you be prepared for the financing experience.

Here's what to expect #2 - You should understand your financial information

When a bank reviews your financial information, they will try to determine what is normal.  So, they'll try to back out any unusual or non-recurring revenues or expenses.

So, be prepared to explain what is normal and recurring and unusual and non-recurring.

These types of items are generally non-recurring.  

Grants, loans, large unusual donations, and insurance claims are examples of non-recurring revenues.  These are revenues you won't receive each year.

Grant expenses, large one-time purchases or repairs, and payments on repaid loans are examples of non-recurring expenses.  These expenses are not typically incurred each year.

Summary

It's important to have someone who understands what is normal and what is unique financially with your department's recent history.  It will help a bank perform a quality repayment analysis when they are confident in your knowledge of your department's financial statements.

Stay safe!
John R. Hill
President
First Bankers