Wednesday, February 21, 2018

Fire Truck Leasing Horror Stories: #7

More and more fire departments are choosing to finance their new fire apparatus.

And there are some hidden traps if you don't know what to ask.

Horror Story #7

Have you ever received a letter from the IRS?

If you're like most people, your heart races a little and you dread opening the envelope.

But it can happen easily if you don't follow all the rules when financing your fire truck.  It's important to file an IRS form 8038 and your fire department is responsible if the information on the form is incorrect.

Violating the rules can lead to the IRS denying your tax-exempt financing.  This can mean a higher interest rate, penalties, and other complications and costs.

Volunteer fire departments have additional rules to follow to qualify for lower, tax-exempt interest rates.

Summary

The IRS is very specific in their requirements for tax-exempt financing.  Failure to meet all the rules can lead to some major problems for your fire department.


Stay safe!
John R. Hill
President
First Bankers

Wednesday, February 14, 2018

Fire Truck leasing Horror Stories: #6

More and more fire departments are choosing to finance their new fire apparatus.

And there are some hidden traps if you don't know what to ask.

Horror Story #6

Can you actually lose money getting a discount?  The answer is "Yes" and I see it all the time.

So, how can you lose money getting a discount?


It's simple.  You pay more in interest than you get from a prepayment discount.

When you prepay a fire apparatus, the manufacturer gives you a discount so they can use your money to build your truck.

If you borrow money to prepay the manufacturer, it's possible to pay more interest from borrowing than the discount you earn. 

You must compare the cost of prepaying with the benefit (discount) of prepaying to know if it's a good deal or not.

Summary

A discount is not free.  There is a cost when you borrow money to prepay the manufacturer.  It's important to compare the costs and benefits to know if you prepay the truck or not.

Stay safe!
John R. Hill
President
First Bankers

Wednesday, February 7, 2018

Fire Truck Leasing Horror Stories: #5

More and more fire departments are choosing to finance their new fire apparatus.

And there are some hidden traps if you don't know what to ask.

Horror Story #5

What would you do if you learned you could have saved a lot of money after you already signed the contract?

You probably would feel like a heel.

But most fire departments set themselves up to do just that.  It's because they view their conversation with bankers as a competition rather than a collaboration.

Here's what that looks like:

Almost every day, callers ask me for information and withhold information from me.  Things like payment budget.  So, they get some information and try to make a decision.

In one case just this week, a fire department eventually shared their payment budget.  When I heard the budget, I could develop some options that fit their budget and saved them money.  In this case, it saved them from paying over $22,000 of extra interest!

Summary

When you set up a competition, you set up a game where you are an amateur playing against a professional.  And you will always lose.  View your conversation as collaboration and you will save money.

If the banker doesn't see it that way, you need a different banker.

Stay safe!
John R. Hill
President
First Bankers

Wednesday, January 31, 2018

Fire Truck Leasing Horror Stories: #4

More and more fire departments are choosing to finance their new fire apparatus.

And there are some hidden traps if you don't know what to ask.

 

Horror Story #4

What if you choose to use too much of your savings toward your new truck?  Or too little?  Why is that bad?

There is an art and science to choosing how much to put down.  And it all fits into your current and future financial plans and condition.

Choose too much and you've drained your reserves.  Then, you can be vulnerable when you have a future unexpected event.  You've left yourself with no cash reserves to handle the event easily.  For example, if you drain your savings for a new fire apparatus and the next year the roof on your station needs replacing.  Did you leave enough to replace your roof?

Choose too little and you are wasting money.  I see the other extreme.  A fire department that wants to see a big a cash reserve.  They don't realize they are, in effect, borrowing money to have that big of savings balance.  So, paying money to look at a big number on their bank statement.

The science behind choosing a down payment is to maintain the balance between a financially appropriate amount of savings (between 6 months and 12 months of revenue) and borrowing the least amount of money (and paying for it).

Summary

Choosing a down payment should factor in several items.  Both how the down payment affects your department now... and in the future.


Stay safe!
John R. Hill
President
First Bankers