John Hill of Envizion Financial has spent nearly 20 years lending money to fire departments and municipalities. He's financed more than 3,500 trucks for about 2,500 fire departments. He offers this advice to fire departments to get the most out of their apparatus financing.

In this economy, how should fire departments change their approach to finance?

Be very cautious and do a lot of homework. They need to do some real stress-testing on their budgets to understand what may happen if their revenues go down 10% or 15%; ask what happens if revenues go down by 10% and costs go up by 10%. We have a unique environment. We have a recession and inflation, which economists tell you shouldn't happen, but it is.

Will the changes in lending practices affect fire departments?

Lenders are going to be a lot more cautious right now. Fire departments are probably going to get a little more investigation and more questions asked. But I've seen no indications of a drying up of capital for fire departments like there is with home mortgages.

What common financing mistakes do fire departments make?

The biggest mistake, and I see this regularly, is fire departments that have savings or rainy-day accounts and do not use them to purchase capital assets. They say that they can earn more than what they are paying in interest. Unless you are taking on a lot of risk, that is never going to be true for any kind of certificate of deposit or money market thing. If you are getting into speculative stocks or investments, you can earn a rate of return that might be higher, but you risk having your savings account reduced in value. The second thing is how they budget the timing of their payment. If they receive their money in the form of a tax draw in May, it costs them a lot of money to wait until November to make that payment. On a regular-size truck, that's easily a $6,000 or $7,000 cost.

Can departments calculate how much truck they can afford?

How much they can buy is a really complex financial formula. I can turn that around a little bit and say how to set a budget. A good rule of thumb is to use 10% of the cost of the truck. Then you get a feel for if that payment would fit your budget. If it is a $300,000 truck, you can ballpark that your payment on a 15-year transaction will be about $30,000. If they feel they can afford more, then they can buy more truck or pay that truck off quicker. If the $30,000 payment estimate is a little bit high for them, then that should be an indicator that they need to reduce the cost of the truck or how much they borrow.

What changes do you see for the next five years or more?

The cost of apparatus is far outpacing general inflation, and I see that continuing over the next five years. The last numbers I saw were about 7% and the true inflation number is somewhere around 4% or 5%. Over the next five years, budgets are going to continue to be squeezed both by the revenue and expense pressures.

What should departments do now?

Review their entire fleet and determine what they need to replace through the next five years, the next six to 10 years, and which trucks are going to live beyond that. They need to prepare for this and manage the fleet to gain some efficiency. Consider if there is a way to remove two trucks from the fleet and replace it with one truck that is multi-use. I see a trend recently to refinance trucks to get another truck. Use some caution there. [It is extending payments over a longer period to reduce monthly payments and using that money to borrow to buy more trucks.] What you are doing is paying your interest twice on that old truck. The short term of lower payments is nice, but it might put them into a bad economic deal.

What can departments do to increase borrowing power?

One of the easiest things that will help you borrow more and get a better interest rate is to have organized financial records. I highly recommend that they use an account to organize and teach them to enter data. Banks love borrowers that have no debt and lots of money in savings. The closer you can get to that, you benefit tremendously.