Wednesday, March 22, 2017

About Fire Truck Bonds and Loans

Over the past few weeks, I've discussed the different types of fire truck financing.

The final type of financing is called a fire truck bond or loan.

What is a fire truck bond or loan?

The other types of financing were a form of lease financing - either walk-away, turn-in, or lease purchase.  These types of agreements allow some flexibility with regard to payments.

A fire truck bond or loan is just what it sounds - a loan.  It means you make a set amount of payments and then, after paying them all, you own the apparatus.  There are no means for you to cancel the financing.  Your only option is to pay the payments or be in default.

Some legal considerations about fire truck loans or bonds

A bond or loan has more legal requirements than a lease type financing.  The obligation is subtracted from your local government's borrowing limits.  Many times, the payment obligation is mandatory which means the government must raise taxes to make payments.  Finally, these legal requirements usually mean more fees than the lease type financing.

Summary

Each of these different types of agreements are perfect for the right situation.  The trick is to know which form of financing fits your situation.

Stay safe!
John R. Hill
President
First Bankers

Wednesday, March 15, 2017

What is fire truck lease purchase non-appropriation?

What is a fire truck lease purchase agreement?

It's also (mistakenly) called fire truck leasing. In some states, it's (correctly) called an installment purchase agreement.

A fire truck lease purchase is the most common form of fire truck financing. It's been around for about 40 years and is well tested from both a legal and tax standpoint.

The reason why a lease purchase agreement is different

A fire truck lease purchase agreement includes a clause called a "non-appropriation clause".  This clause means that you as the borrower have the right to cancel the lease purchase agreement each year.

By adding this clause, most states have ruled that this type of fire truck financing agreement does not count as debt.  It is an annual expense subject to your choice of continuing to pay or not.

If you choose to non-appropriate (or not provide money in the budget for the payment), you forfeit the truck.

This type of financing was created in the late 1970's and has been thoroughly tested in the courts since then.  It is well-established and is the most common fire truck financing agreement.

Summary

A lease purchase agreement includes a specific clause giving the borrower more options than a fire truck lease or bond (loan).  This is why it is a separate type of agreement.


Stay safe!
John R. Hill
President
First Bankers

Wednesday, March 8, 2017

What's a fire truck lease purchase agreement?

What is a fire truck lease purchase agreement?

It's also (mistakenly) called fire truck leasing. In some states, it's (correctly) called an installment purchase agreement.

A fire truck lease purchase is the most common form of fire truck financing. It's been around for about 40 years and is well tested from both a legal and tax standpoint.

What are some common terms?

Unlike the walk-away or turn-in leases, a fire truck lease purchase agreement is designed so that you can own the truck as long as you like.
  1. You pay payments that build equity.  Each payment includes principal and interest.  So, with each payment, you owe less and own more of the truck.  When you have paid all the payments, you own the truck to do with as you please.
  2. You provide a lien on the truck.  The truck secures your repayment and a lien will be placed on the truck's title.  When you have paid all the payments, the lien is released.
  3. There are not a lot of requirements. Unlike a lease (walk-away or turn-in) or bond (or loan), the requirements are fairly minimal.  You agree to keep the truck insured, keep it repaired in case of an accident, and to do nothing that causes the IRS to eliminate the tax advantage.
  4. There are no large extra costs.  Usually, you are not liable for any other large costs or expenses. 
  5. It's tax-exempt.  That means the bank does not pay taxes on the payments.  You benefit because the bank can offer a lower interest rate.  This is different than a lease (walk-away or turn-in).

Summary

A fire truck lease purchase is different than a lease or a bond (loan).  It's been around for a long time and is much simpler.

Stay safe!
John R. Hill
President
First Bankers

Wednesday, March 1, 2017

What's a fire truck turn-in or walk-away lease?

A recent invention, what is fire truck leasing?

Also called turn-in or walk-away leases, these type of agreements are just the same as leases for autos.  They work well for fire departments with very specific situations.

What are some common terms?

Here are some common features of these types of agreements:
  1. You don't own the truck, only pay to use it for a few years.  At the end of the contract, you must make a choice. Either buy the truck, refinance it for either a set price or fair market value, or give it back and buy a new truck from the manufacturer (depending on type of financing contract).
  2. You must maintain the truck according to the terms of the contracts.  These type of agreements require you to keep the truck maintained according to a set schedule and keep the truck in a certain condition.  Failure to do so will result in the extra fees and costs to bring the truck up to the standard you agreed.
  3. These agreements do not qualify for low tax-exempt interest rates.  So, the financing cost will be higher than other options.

Summary

These type of agreements are relatively new.  They benefit fire departments who have specific needs regarding their apparatus. 

The manufacturers like them because more trucks are sold and, in the case of turn-in leases, you are forced to buy a new truck from the same manufacturer.  They've locked you in as a customer.

Stay safe!
John R. Hill
President
First Bankers