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The following 10 questions are sure signs that your banker is inexperienced in the unique business of financing fire trucks. Don't get caught accepting these typical banker mistakes because they will cost you thousands of hidden dollars.
Question #1: Are volunteer fire departments eligible for tax-exempt financing? We'll need your local government to borrow the money instead of you.
Answer: Yes. The irs code designates volunteer fire departments as “qualified" tax-exempt borrowers just like cities, townships, counties, villages, towns, and states. Bankers who don't specialize in tax-exempt financing won't know that volunteer fire departments can and do borrow tax-exempt. Don't accept this requirement from the bank unless you want the local government to borrow the money.
Also, your interest rate should not be any higher than your local government. Volunteer fire departments are treated exactly the same and there is no premium to be paid.
Question #2: We can't finance a truck longer than 5 (or some other low number) years. What short term would you like?
Answer: Common fire truck financing is for terms of up to 15 years. A fire truck is a major purchase with a long life cycle. It makes sense to finance this major purchase with the expected useful life and your budget in mind. Don't get caught financing a long lived asset with short term financing (unless you want).
Question #3: We only offer a variable rate or only fix the rate for 3 or 5 years. Is that acceptable?
Answer: No. Most fire trucks are financed on fixed rates. Fire departments should not be in business of accepting interest rate risk or hedging interest rate futures. When a bank tells you that they won't provide a long term fixed rate, find another bank who understands how fire truck financing is handled in the U. S.
Question #4: We only offer monthly payments and they begin right now. Is that OK?
Answer: No. Fire trucks can be financed with several types of payments such as monthly, quarterly, semi-annually, or even once a year. Payments should be based on when you receive your revenues, not based on some arbitrary calendar item such as one month after the loan or one year from delivery. Your payments should match when you receive your money in your budget, not anything else. A banker who is experienced with financing fire trucks will know this and schedule your payments accordingly.
Question #5: The truck can not be delivered until 6 (or some other number of) months. Will your truck deliver before that?
Answer: Knowledgeable bankers will not impose any sanctions on when your truck can deliver. They understand that you need your truck when you need your truck.
Question #6: Are you aware that financing your new truck is always a good deal? That way you keep your savings high.
Answer: Not necessarily. Each department's situation is different and should be examined by its own goals, situation, and future prospects. Having a large savings account for no purpose and borrowing money is ALWAYS a more expensive method of paying for trucks. No matter what return you think you're earning on your investments. If you're consistently earning more on your investments than the loan interest rate, you are taking on a lot of financial risk.
Question #7: Does our rate look the lowest to you?
Answer: Not without some examination. There are several different ways of presenting a “legal" interest rate. Some methods of calculating interest can appear the same but, in fact, be as much as 1/4% higher. Also, by focusing on only the interest rate, you miss the other 6 Factors that control how much total interest you pay. Don't stop your review at the stated interest rate, there is much more to complex financing than that.
Question #8: We'd like to give you a loan instead of leasing your new fire truck. Is that OK?
Answer: Maybe. Leasing a fire truck is far different than the typical leasing that comes to mind ( think auto leases where you use the car for a period of time and then give it back as long as the miles are low). Fire truck leasing is designed by the tax laws for you to own the vehicle and you will get a lower tax-exempt interest rate because it is structured correctly. There are specific state laws about getting a loan - you might have to get voter approval or some other type of authorization for the loan to be legal. By leasing, in 48 states, you do not have to get outside approval because the way a tax-exempt lease is structured.
Question #9: You are a volunteer fire department, we will need some personal guaranties. Who is guaranteeing this lease?
Answer: Nobody. Reputable and knowledgeable fire truck financing companies understand the nature of volunteer fire departments. They can assess the department only and won't require anyone to personally be responsible to repay the lease.
Question #10: Who do I send the bill for our attorney and our closing costs to?
Answer: Keep them. A knowledgeable bank will not need to get their attorney involved. They should do enough of these type of transactions to have the paperwork ready without the added costs of their attorney preparing it each time. Also, you should not have to pay any closing costs. You should only be liable to pay for the payments, period.
When you hear any or all of these questions, it's very likely you are trusting a major financial decision with someone who is inexperienced. You will probably pay much more costs and have a lot more hassle. Don't accept any of these questions for your department. Find a reputable and knowledgeable bank to help you with the biggest financial decision you're department will ever make.
Stay safe! John Hill, Apparatus Budgeting Consultant
Envizion Financial
Toll-free (877) 368-4946
Go to http://www.envizionfire.com/PA.php to see me in action.
Go to http://firefinanceexpert.blogspot.com for stories about fire department finances
