Wednesday, December 17, 2014

Fire Station Financing Best Practices

Constructing a fire station is a very complex event.

I thought I'd share some best practices from my years of helping fire departments construct and finance their new fire station.

Here's my top 5 list:

  1. It will cost more than you think.   There are always overruns and changes that add to the cost of their project.  It's safe to assume a 10% cushion but I regularly see a final cost 20% more than the original budget.  Best Practice:  When you set your budget, plan on how you will pay for 120% of the original cost.
  2. It will take longer than you think.  And time is money. At least, you pay more when you borrow money for longer term.  Best Practice:  Budget more for borrowing costs.
  3. It's not cheap.  Depending on your local rules and regulations, you will generally pay 1 - 2% of your mortgage for transaction costs like appraisals, title insurance, and environmental investigations.  Best Practice:  Be prepared for the mortgage transaction costs.
  4. It can go very wrong.  I've talked to dozens of departments who shared horror stories of poor contractors.  Stories of unfinished stations, vanishing contractors who took the money and ran, didn't build to satisfactory standards, etc.  Best Practice:  Don't pay before the work is done.  Set up a check and balance that the work is done well before you issue progress payments.
  5. Failure to plan is planning to fail.  I talk to departments who get so far ahead of themselves with the excitement of a new station that they make dozens of small financial mistakes.  Mistakes like not planning for extra costs or rolling costs into the financing.  Best Practice:  Plan thoroughly.  This is a big project and huge mistakes are easy to make.  Mistakes that will take years to overcome.

Summary

In a word, plan.  Then, plan some more.  Understand that constructing a new fire station is a very complex physical and financial project.  If you don't know how, get help from someone experienced with exactly what you are trying to do.

Stay safe!
John R. Hill
President
First Bankers

Wednesday, December 10, 2014

Setting a fire truck purchase budget

You've got the go-ahead to buy the truck.  How much can you afford?

As I've said in the past, budgeting is a part of the justification process.  And setting a truck budget depends on how you intend to pay for the truck.

Setting a fire truck budget

If you have a grant, saved up, or just have the entire purchase in next year's budget, your truck budget is pretty simple. It's the amount you can write a check.

Things get more complex if you are borrowing money to pay for the truck.

It becomes a balancing act. 

How much should you use from savings as a down payment without draining your savings too much?  Use too much and you leave your department vulnerable in case of an emergency or unplanned event. Use too little and you pay a lot more financing costs.

How much should you set as your payment budget?  Set it too high and it can overwhelm your annual budget.  Set it too low and you may have to leave options off your truck.

You can download a free Fire Truck Budgeting Kit at FirstBankers.net/Budget

Summary

Setting a budget is running through a set of choices and balancing your current and future needs.  Done right, you get what you need and won't feel any financial stress.  Done poorly, and you will live with the consequences for years.


Stay safe!
John R. Hill
President
First Bankers

Wednesday, December 3, 2014

Fire Truck Financing: Interest rate trick

This is a true story of a fire department in Maryland. They shared their story last week.

What would you do if you found out you paid more than 1% higher interest rate than you were told you were being charged?


The Department financed a new heavy rescue truck a few years ago.  They choose the best interest rate from the banks they called.

But while they technically had the lowest rate, they paid the highest cost.

How could this happen?

The department signed the papers and discovered at the last minute that the bank would finance their truck but would require a mortgage on their station as well as the truck.  And the closing costs on the station would equal about $10,000.

These extra costs would be equal to charging an extra 1%.  And every other offer the department received was less than 1% higher so any other offer was a better deal that what they selected.

The department was at the loan table and had a truck coming in so they just agreed to the costs.  Without understanding the true effect of their decision.

Summary

Rate does not equal cost when borrowing money.  Rate is part of the cost but is not the whole cost.  More information is needed to have an accurate comparison.

When comparing financing offers, use Total Borrowing Cost, a modern and complete method of comparing fire truck financing offers.

Stay safe!
John R. Hill
President
First Bankers

Wednesday, November 26, 2014

Thank you

I am thankful for the thousands of men and women who bravely and capably serve our nation's communities.

Have a blessed and safe Thanksgiving.

Stay safe!
John R. Hill
President
First Bankers