Wednesday, October 29, 2014

The 8 Key Fire Truck Money Questions - #7

As you get near the purchase and financing of a fire truck, the next question is tougher than the rest.

How do I avoid making a financing mistake?

The problem is most people have not financed many fire trucks in their lives.  So, they may not be aware of what mistakes can be made.  Let alone, if they are making one.

What are the common fire truck financing mistakes?

  • Selecting the wrong term (or repayment period).  This means too short or too long.  Too short means you use too much of your budget for the payment and don't have enough extra for contingencies.  Too long means still paying on a truck that is also starting to need repair costs or beyond its useful life.
  • Selecting the wrong down payment.  If you pay too large a down payment, you drain your rainy day funds and may be in trouble in an unexpected event.  If you pay too little, you pay too much for borrowing costs.
  • Paying too much.  It's easy to focus on the rate but miss other information that adds to your borrowing costs.  And it's more than fees.  As an example, timing of payments during your budget year is a small tweak that saves thousands of dollars.  Yet most departments don't ask and miss this opportunity.
  • Don't set up apple to apple comparisons.  As mentioned above, borrowing cost is more than just the interest rate.  Yet most departments look at different offers and compare rate.  Total Borrowing Cost is a comprehensive and modern method to compare financing offers.  Request that information and you'll be amazed how easy it is to compare different choices.
Summary
No one likes to make a mistake.  And financing mistakes are mistakes that take years to show up.  It's important to prepare yourself to avoid common financing mistakes.


Stay safe!
John R. Hill
President
First Bankers

Wednesday, October 22, 2014

The 8 Key Fire Truck Money Questions - #6

The 6th fire truck money question is about your choices.

What options are there when borrowing money for a fire truck?


You have a lot of choices and options when buying a fire truck. Many more than when you borrow money for a car or house which offer standard terms and the only difference is the rate and fees.

Here are some common fire truck financing options:

  • Term.  This is the amount of time you have to pay back the money you borrow.  For fire trucks, the options are from 3 to 15 years.
  • Payment Frequency.  This is how often you pay the payment.  You can pay monthly, quarterly, semi-annually (twice a year) or annually (once a year).
  • Down payment.  This is what you are required to invest in the truck along with the loan.  For fire trucks, no down payment is usually required.
  • Payment Timing.  This is when you pay the payment each year.  You can schedule a payment anytime that fits your budget.
  • Skip Year Payment.  You can skip an entire budget year before making your first payment.
  • Step Payment.  You can have lower payments in the beginning for common circumstances such as you are paying off an existing loan, you are waiting for new tax revenues to be collected, or you are waiting for budget increases.

Summary

There are many choices and options when financing a fire truck.  It makes fire truck financing much more complex.  Each choice can either cost or save your department thousands of dollars.

Stay safe!
John R. Hill
President
First Bankers

Wednesday, October 15, 2014

The 8 Key Fire Truck Money Questions - #5

The next money question is:

What should we expect when we borrow money for our new fire truck?


Borrowing for a fire truck in unlike borrowing money for a car or home.  It's more complex, with more options, and has to follow the IRS rules (if you want to qualify for lower tax-exempt rates).

First, there is a credit review process

You'll be asked to provide financial reports of your department.  If you are a municipality like a town, city, county, fire district, or township, you'll be asked to provide recent audits.  If you are a volunteer fire department (a not-for-profit like a 501c3), you'll be asked to provide the IRS form 990's you are required to file with the IRS each year.

Your information will be reviewed for creditworthiness and suggestions on better and cheaper financing alternatives.

Then, the financing contract is signed

You'll be provided with a financing contract which includes the terms, conditions, and payment you've agreed to.  You must follow IRS rules regarding borrowing money which includes public notices and public hearings.  Your attorney will also be involved to ensure you are following the local and state rules.

The penalties for not following the rules are quite severe.  You may lost your exempt status or the interest rate will be dis-qualified.  Regardless, an error will cost a lot of time, trouble, and money.

Summary

Borrowing money for a fire truck is a unique financing experience.  There are a lot of choices and rules to follow.  It's best to work with someone who has this specific experience to avoid costly mistakes.

Stay safe!
John R. Hill
President
First Bankers

Wednesday, October 8, 2014

The 8 Key Fire Truck Money Questions - #4

The 4th Key question is:

What should I know about borrowing money for a fire truck?

 A corollary to this question is:  How do I not mess up?

Preparation is the key to answering this question wisely.  

And that means developing a success criteria for your fire department such as:

  • How will we define the best financing choice (lowest cost, best budget fit, lowest payment, flexible terms)?
  • What information will we request to make selection easier and simpler?
  • What are the "must-haves" and must-not-haves" in financing offers?

Why this question is so important

Financing a fire truck is expensive. For a $300,000 truck, borrowing cost can total $50,000 or even $100,000 based on the choices you make.

Preparation comes from your past fire truck financing experience (you can't draw upon car or home financing as they are much different), neighboring departments, and online information.

Summary

Take the time to think this through.  Too often, I talk with departments who spent literally thousands of man hours on specing the truck but spend minutes on financing.  With the costs so high, a mistake can hurt your department financially for years to come.

Stay safe!
John R. Hill
President
First Bankers