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The pre-negotiated plans offered by the State Financial Marketplace are for the most popular forms of payment terms and are standard purchase scenarios. For more advice, please contact the $Mart Manager.
Hint 1: Some agencies are budgeted on an annual basis and, hence, can make annual payments and large down payments. Because interest is computed over a time period on the remaining balance, it is generally less costly to borrow utilizing annual payment plans with a down payments versus monthly payments. The faster the balance is paid off, the lower the interest costs.
Hint 2: Sometimes an agency may find itself with extra funds at the end of a fiscal year. Making a partial prepayment of the balance will help lower the cost of borrowing. Please remember, however, that any prepayment should be coordinated with the Lender with 45 days prior notice. Agencies should confirm with the Lender what the remaining schedule should look like with the prepayment, then amend the Contract/P.O. to include the new payment schedule.
Hint 3: Dates selected for payments should take into consideration the annual budget approval delays. If payments are scheduled for July 15 of each year, and the budget does not get approved until August 1, the payment would be late almost every year. Schedule annual payments on (or about) September 1.
Hint 4: California Public Contract Code Section 10320.5 addresses contracts with acceptance testing periods. Interest is to commence upon the first day of the successful acceptance testing period. Therefore, interest in the first payment may include more interest than normally expected with the State's payment lag.
Hint 5: Prepayment is not considered refinancing. The earlier in the payment schedule a prepayment or refinancing is done, the more interest savings will be realized.
Hint 6: Tax-exempt financing is less costly than taxable financing but have many applicable federal tax and securities regulations. In general, it is better to use tax-exempt financing unless a $Mart Manager, Lender or other lease purchase expert has advised you otherwise. Contracts for assets that are used for non-governmental purposes more than 10% of the time or are funded directly from the federal government do not qualify for tax-exempt financing.
Hint 7: Don't let a supplier talk you into using their lender, known in the industry as a "captive" lender. The State reserves the right to select a lender or lessor for their procurement. Use of any financing arrangement other than GS $Mart, even utilizing baseline budget resources, is prohibited without prior approval from Finance. A department proposing such financing must request approval in writing and must provide an analysis to support the basis for selection of the financing to Finance support unit. A proposed financing arrangement other than GS $Mart will be subjected to a rigorous evaluation that must demonstrate that it will provide the state with better terms than GS $Mart and will provide comparable financial security regarding such issues as tax exempt qualifications, financial health of the lender, and the financing's effects on the state's credit rating. Also, you may be getting a great price on your financing costs, but remember, there's no such thing as a free lunch. The captive lender, more times than not, is recouping their costs from the supplier via a pass-through; you'll be charged more for the equipment to make up for the great interest rate.
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