Fire Truck Playground – The following 10 questions are sure signs that your banker is not experienced in the unique business of fire truck financing. Don’t get caught up in the typical banker’s mistakes because they will cost thousands of hidden dollars.
Question # 1: Will the volunteer fire department qualify for tax-free financing? We need your local government to borrow money, not you.
Fire Truck Playground
Answer yes. The IRS Code designates voluntary firefighters as tax-free borrowers who “qualify” such as cities, towns, districts, villages, cities and states. Bankers who do not specialize in tax free financing will not know that voluntary firefighters can and do borrow tax free. Don’t accept these terms from the bank unless you want the local government to borrow money.
In addition, your interest rate may not be higher than your local government. Volunteer firefighters are treated exactly and there is no premium to be paid.
Question # 2: We cannot finance trucks more than 5 (or other low amounts) a year. What short term do you want?
Answer: General fire truck financing for a period of up to 15 years. A fire truck is a major purchase with a long life cycle. It makes sense to finance this large purchase with an estimated useful life and your budget. Don’t get caught in financing long-term assets with short-term financing (unless you want).
Question # 3: We only offer variable rates or only fix rates for 3 or 5 years. Is that acceptable?
Answer: No. Most fire engines are financed at a fixed rate. The fire department may not be in the business of accepting interest rate risk or hedging interest rates. When a bank tells you that they will not provide a long-term fixed interest rate, find another bank that understands how financing a fire truck is handled in U.S.
Question # 4: We only offer monthly payments and they start now. Is that ok
Answer: No. Fire trucks can be financed with several types of payments such as monthly, quarterly, semi-annual, or even once a year. Payments must be based on when you receive your income, not based on some arbitrary calendar items such as one month after the loan or one year from delivery. Your payment must be appropriate when you receive money in your budget, not others. A banker who is experienced with financing a fire truck will know this and schedule your payment accordingly.
Question # 5: The truck cannot be shipped up to 6 (or several other quantities) a month. Will your truck deliver before that?
Answer: A knowledgeable banker will not impose sanctions when your truck can provide. They understand that you need your truck when you need your truck.
Question # 6: Do you know that financing your new truck is always good? That way you keep your savings high.
Answer: Not necessarily. The situation of each department is different and must be examined by the goals, situations, and future prospects of each. Having a large savings account without purpose and borrowing money is ALWAYS a more expensive method of paying for a truck. Whatever returns you think make your investment. If you consistently make more on your investment than the loan interest rate, you take a lot of financial risk.
Question # 7: Does our rate look the lowest for you?
Answer: Not without examination. There are several different ways of presenting “legal” interest rates. Some methods of calculating interest can look the same but, in fact, become 1/4% higher. Also, by focusing only on interest rates, you lose 6 other factors that control the total amount of interest you pay. Don’t stop your review on the interest rates mentioned, there are many things that are more complicated than the financing.
Question # 8: We want to give you a loan instead of renting your new fire truck. Is that ok
Answer: Maybe. Renting a fire truck is far different from the usual rental that comes to mind (think of automatic rentals where you use the car for a certain period of time and then give it back for a mile mile). Fire truck leasing is designed by the tax law so that you have a vehicle and you will get a lower tax-free interest rate because it is properly structured. There are certain state laws about getting a loan – you may have to get voter approval or other types of authorization so that the loan is legal. With leasing, in 48 states, you don’t have to get outside approval because the way it is structured is tax free.
Question # 9: You are a volunteer firefighter, we will need some personal guarantees. Who guarantees this rent?
Answer: None. Reputable and knowledgeable fire truck finance companies understand the nature of fire-fighting volunteers. They can only assess the department and will not require anyone to be personally responsible for paying rent.
Question # 10: To whom do I send bills for our lawyers and our closing costs?
Answer: Save it. A knowledgeable bank does not need to involve their lawyer. They have to do enough of these types of transactions to have documents ready at no additional cost from their lawyers to prepare them every time. Also, you don’t need to pay closing fees. You should only be responsible for paying payments, period.
When you hear one or all of these questions, it is very possible that you trust the ultimate financial decision with someone who is inexperienced. You might pay more and have more complexity. Don’t accept this question for your department. Find reputable and knowledgeable banks to help you with the biggest financial decisions your department has ever made.
Stay safe! John Hill, Apparatus Budgeting Consultant
Toll free (877) 368-4946
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