Why do fire and EMS departments use lease financing?
Financing your new or used fire truck or ambulance can seem like a challenge. Chicken barbeques and other fund raising activities only go so far these days. Fortunately there are finance companies that specialize in emergency vehicle purchase financing.
One such company; Leasing2, specializes in providing lease financing to the fire and EMS industry with emphasis on fire trucks and ambulances. They have helped thousands of customers across the United States with their equipment acquisitions. The company was founded in 1995 and has successfully funded nearly one billion dollars in capital equipment purchases and real property construction projects.
Like you, we wanted a better explanation of the term “Lease Financing” when it came to the purchase of a new or used fire truck or other emergency vehicle.
What is lease financing?
Leasing2 describes it like this:
Lease financing is the most widely used method to purchase fire trucks, ambulances, equipment and stations while improving the management of cash flow.
When available, the tax-exempt interest feature of lease financing has tremendous value to fire and EMS departments across the country. The interest earnings under a properly structured and documented lease is exempt from federal income tax to the lender under the same tax laws that enable a municipal bond to carry a tax-exempt rate. Because the lender does not pay federal tax on the interest earned, the tax-exempt lease carries a much lower interest rate than other kinds of leases and installment loans, thus significantly lowering the cost of financing for the borrower.
Local governments including cities, counties, and fire districts qualify for this benefit on nearly all essential equipment. Volunteer fire corporations qualify for this benefit when financing fire trucks and stations, but not ambulances and equipment. This type of financial instrument is also referred to as a “government lease-purchase”, a “municipal lease” or a “tax-exempt lease”. While they are documented as a lease, they have characteristics similar to a loan in that there is a principal component in each payment, and the lease can be paid off early if desired. Once the department makes all payments, the department owns the asset free and clear.
Because local government agencies are restricted from committing funds beyond one year without voter approval, lease financing for them includes an annual non-appropriation clause which provides necessary options. In most cases, their obligation terminates if the governing body fails to appropriate funds to make the renewal year’s lease payment. Because of this provision, neither the lease nor the lease payments are considered debt. Non-appropriation is not an event of default but the fire department or EMS returns the asset.
Lease financing makes the acquisition of fire trucks, ambulances and equipment affordable to fire and EMS departments.
What is the structure and lease terms?
- Fire Trucks – Up to 15 years
- Ambulances – Up to 7 years
- Equipment – Up to 5 years (7 years at times)
- Stations – Up to 20 years (30 years for some projects
- Payment Frequency Annual, Semi-Annual, Quarterly, Monthly or Custom
- First Payment Due Date Deferrals up to one year after lease starts for annual payments