The new deal on financing

The good news for you and your department is that a well-managed fire or rescue department will always be viewed by lenders as a fairly conservative “commercial business loan” compared to many other commercial loans. Therefore, your access to capital and funding should continue to be available in the months and years ahead.

Before we explore the potential resources of funding for your department, let’s take a look at the business you are charged with managing on a daily basis, and how systems within that business model can make your life a whole lot easier when it comes time to purchase apparatus, or build a station.

Think about it this way: You would never attempt to respond to an emergency situation without the requisite training, equipment, tools and manpower. Embarking down the path to financing is no different, and with a little preparation and planning, the process will be much smoother and less stressful for you and your department.

Step 1: Preparation

Make sure you understand the business model of your department, or that you have someone in place to do so. This could be a volunteer with an accounting background, your board treasurer or an outside accounting firm. The level of expertise required for your department depends on its size and complexity. It may require a full annual financial audit, or simple recordkeeping of income and expenses on finance management software, like Quicken.

You need to know on a weekly, monthly, quarterly and annual basis what income you expect to receive, when you expect to receive it, and how your department is managing its expenditures. Most departments are required to prepare proposed budgets for their upcoming fiscal year in order to receive fire and municipal tax revenues. In doing this, you will usually have to provide how your previous year’s actual financial history compared to your projections, and how the appropriated funds were managed. Tracking your financials — at least monthly — will assist you with identifying income and expense trends, and help determine if you need to make any changes to keep you on budget for the fiscal year.

Excellent financial recordkeeping is the key to funding your next purchase. Lenders want to see how the department has historically managed its cash flow in order to determine if they can afford the proposed payments on their new loan request. As a business, you need to be able to document — and prove — that the department has the income and cash flow to support the requested loan payment. You also need to show you have adequate cash reserves should an unexpected expense present itself. Lenders need to know this in order to support your request for loan approval. More importantly — and especially in the current economy — you need to know how your department would handle such a situation should it arise.

Step 2: Planning

As a volunteer or career firefighter or rescue/EMS worker, the last thing you may want to do is serve on another committee; however, these are necessary for your department’s long-term financial stability, as well as for obtaining the needed funds for equipment purchases and future construction projects.

The committee that has proven time and again to be worth its weight in gold is the “strategic planning committee.” This group is typically charged with short- and long-term capital asset management and expenditures, lending options, grant application requirements, and anything else that is necessary to plan for your department’s financial future. Having this type of major oversight committee will save you stress, time and energy, as you will be able to time your department’s funding needs with funding availability.

Other subcommittees that often assist the strategic planning committee focus on things like finance, apparatus and construction, each bringing its own expertise to the department’s overall planning process.

These various areas, or subcommittees, should coordinate with each other to ensure the funds for each stage of the process are in place when they are needed. Many departments will time the delivery of a purchase, or the completion of a building project, so that the first payment on a new loan will coincide with the receipt of their annual fire tax revenues. This can play a tremendously important role in the cash flow management of the department for years to come.

Add to this mix a continually-changing interest rate environment, loan rate lock-in periods, and grant program application deadlines, and you can see how the success of a department’s funding is really dependent upon planning ahead. It is not unusual for departments to plan years in advance for a truck purchase or station build.

Step 3: Shop lending institutions

Major banks, community banks and credit unions are all loan sources. When contacting these institutions, you will often find you are comparing “apples to oranges” as to the types of commercial loan rates, terms, costs and documentation requirements. Most of us tend to focus on finding the lowest rate in order to save money. However, it’s the total overall structure of the loan that’s more important to your department’s financial well-being. The lowest rate combined with a shorter term might require a payment that your department’s budget cannot comfortably afford.

Ask yourself these questions when shopping for a loan: Is the loan over a short term with a variable rate or balloon payment, or is it a longer-term, fixed-rate loan? Does the loan allow for early payoff without penalty? What are the down payment requirements?

Ask for your loan proposals in writing — including an itemized list of closing costs and other fees — and compare them with those of competing lenders. Should you have any questions regarding the process of the loan after you receive the lender’s proposal, ask the lender to attend a board meeting so you and your department’s board can get the answers you need to be comfortable with the process before the first step is taken. Make sure your commercial lender routinely handles these types of transactions and is familiar with your industry’s needs. If you do your homework, and get the loan approval in advance, all you will have to do is manage the apparatus purchase or construction build, and your lender will be ready when you are.

Step 4: Look into USDA Rural Development

If you find it is difficult to obtain a loan at a traditional financial institution, consider USDA Rural Development, a federal agency that offers loans, grants and loan guarantees to fire and rescue/EMS departments, as well as to municipalities with populations of 20,000 or less. Their primary focus is to assist entities that are not able to find similarly competitive funding options in the private sector.

Two proposals from private sector commercial lenders are required to begin the qualification process. USDA Rural Development loan programs also have income and asset requirements that have to be verified through financial statements. This is to ensure the department cannot afford to obtain the same financing terms elsewhere. If a department qualifies under the guidelines for funding consideration, but cannot qualify for the total amount needed, USDA grants may be available to help bridge that gap.

Over the past several years, USDA Rural Development has been a good resource for many rural North Carolina fire and rescue/EMS departments. Information regarding these loan and grant programs, as well as contact information for your nearest USDA Rural Development office, can be found at www.rurdev.usda.gov. Note that as this is a government agency, more processes, procedures, documentation and reporting may be required.

Step 5: Research grant opportunities

Grant programs are available for fire and rescue/EMS departments on both the state and federal level. To gain access to these funds, grant writing is a skill that someone in your department needs to learn. Just as your annual financial statements tell the history of your department to a lender, a successful grant incorporates up-to-date financial information, strategic planning initiatives and demonstrated need to the granting agency. Grant requests must also be performed within the format of the program’s guidelines, which have deadlines, as well as accompanying documentation requirements.

All the necessary information for FEMA grants (AFG, SAFER, FP&S and SCG), as well as and other resources, can be found at www.firegrantsupport.com. Another site where you can find and apply various grants outside of those associated with FEMA is www.grants.gov.

The National Volunteer Fire Council provides a tremendous resource at www.nvfc.org with tutorials on how to begin the grant writing process, as well as actual narratives of departments that have successfully applied for grant funds.

You can also contact the N.C. Office of State Fire Marshal (OSFM) regarding state fire/rescue grant programs at www.ncdoi.com/osfm. OSFM also sponsors statewide grant writing workshops throughout the year. This class instruction, along with the tutorials, will assist your department with accessing available funds. Additional grant writing assistance can be obtained through your state and regional fire/rescue associations.

Grants may also be available through private foundations, which often support the needs of the community. Visit your public library, or contact the grant writer employed by your county or municipality, for information on these organizations. They may not be as large as major national foundations, but in these days of tight budgets, every bit helps.

In this economy, funding a purchase or project may be more difficult than it has in the past. Just remember the key elements: be prepared, plan ahead, and know what options are available for your funding needs. You should be able to get it done!