Don’t waste thousands of dollars

Know the right questions to ask when financing

CarolinaFireJournal - John R. Hill
John R. Hill
01/11/2011 -

Most fire departments don’t know that their request for fire truck financing proposals actually set themselves up to receive less bidders, create more confusion for themselves, and get worse financing terms. This article will help guide your fire department to set up a successful Request for Proposal (RFP) process.


“If you don’t have a resource who truly understands fire truck financing, find a trustworthy and knowledgeable person who can help you understand exactly what financing terms you want.”

First, the RFP is not the time to shop for knowledge.

Too often, fire departments send out RFP requests without knowing what they exactly want. So, they effectively use the RFP process to shop for information about lenders’ offerings. In other words, your fire department sends out an RFP that asks for some very basic terms such as interest rate for a 10 year loan. Your department decided on a 10 year loan because of a general feeling that that should be the term. The lenders reply and offer only that interest rate and payment amount. This is the first step towards you getting a bad deal.

Here’s why. There are seven factors that control how much you pay when borrowing money. When you send out a RFP based on the basic information above, you are opening yourself to those lenders who understand that they can present a low rate but overcharge you on the other 6 factors.

Sometimes, this low rate is calculated on an alternative interest rate formula, which, although legal, is inconsistent with the most popular method of calculating rate. You won’t even know that you are being overcharged until after you sign the contract.

Second, complete a proper analysis to determine your true financial needs.

If you don’t have a resource who truly understands fire truck financing, find a trustworthy and knowledgeable person who can help you understand exactly what financing terms you want. This person should not be someone who will be bidding later so you have an objective source of help. They should help you set a general payment budget, determine how much to finance, decide what loan conditions or restrictions you are willing to accept, and a which specific financing term and dates are best for you. By using this information, you will then be able to use the RFP process for its correct use - getting the best deal - rather than fact finding current financing options.

Your bid will be concise and provide a fair opportunity for lenders to present their best options. When lenders see a general, non-specific RFP, they know that there are sharks that play bidding games. So, they don’t bid, and your department ends up with fewer bidders and higher overall borrowing costs

When you ask for the right information in the RFP, all lenders know you have set up a level playing field that they have a chance to win. So, more lenders will respond to your RFP. And they work harder because they feel they have a fair chance to win. You’ll get better overall proposals.

There are seven specific items you want your bidders to include in their proposal. When you ask for these 7 items, you will get more proposals, better proposals, and get information that is presented uniformly. That means you will have a far easier job in comparing the proposals since they will be “apple to apple”. Otherwise, you will end up with a wide variety of proposals making comparison more difficult, you will miss key cost factors, and you’ll be more susceptible to the game players and less likely to know what the best proposal is.

The 7 factors that determine how much financing cost you pay are:

  1. How Much You Want to Borrow
    In your RFP, disclose the truck price and the down payment you are planning on paying. Your down payment amount should have been determined in your analyses in deciding the best financing term for your department. Lenders will view a down payment more favorably and may provide a better financing offer.
  2. How Many Years You Want to Pay Back the Loan
    Rather than asking for a number of terms (i.e., “please provide payments for three, five, seven and 10 years”), your RFP should be very specific based on the best financing term for your department as determined during the analysis.
  3. The Date of Your First Payment
    Specifiy a date. Moving an annual payment up six months can save over a $1,000 per year in interest. To save money, schedule your payments when you receive the majority of your money. For example, if you receive your funding in April, schedule your payments (and require them in your RFP) for May. If your bank schedules your payment in November, you are probably paying a lot more interest each year. This timing criterion should be discovered during the analysis.
  4. How Frequently You Want to Make Payments
    Do you want to make payments monthly, annually, etc. The frequency of your payments should match how you receive your revenue. If you receive the bulk of your revenue in one large sum each year (like a tax payment or a large annual fundraiser), it makes sense to schedule an annual payment. If you receive monthly income (such as ambulance billings), it probably makes more financial sense to require monthly payments. Your RFP should require payment frequency based on your department’s situation and not what the bank simply wants to offer.
  5. Details of Any Fees or Costs at Any Time During the Financing Term
    This means not just “origination fees” or costs which are charged at the beginning but any fee or cost whatsoever such as prepayment fees or lien release fees or balance verification fees, etc. Ask for any potential fees in writing to protect yourself against later charges that were undisclosed upfront.
  6. Interest Rate and How it is Calculated and How Long the Rate is Fixed
    Interest rates can be legally disclosed several ways with large differences. It’s why the mortgage industry has to disclose both the “interest rate” and “APR.”
  7. Vendor Payout Details
    The bank must verify that they will pay your vendors according to the contract. Otherwise you may incur extra fees from your vendor because they can’t pass along a chassis discount, for example. This is a hidden way you will pay more for your financing choice even though your lender is not charging the fee.

In summary

The key to any successful RFP process is to know what you want. Just as you didn’t send out RFP’s for a “fire truck” without any specifications about the chassis, engine, transmission, or pump you wanted, you shouldn’t send a RFP for financing proposals without specifying the exact terms. Explore your options before you bid and enlist the help of someone knowledgeable whom you trust if you can’t complete a proper analysis on your own. Require specific information in your RFP that your lender has to put in writing upfront.

When doing these steps, you create a fair proposal environment, will get more interested bidders and have easily comparable proposals to choose from.

John Hill is President of First Bankers, a fire truck financing firm. First Bankers has developed the “FireLending Process” which helps fire departments save money when financing a fire truck. You can learn more at
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