DON’T DEPLETE YOUR ASSOCIATION’S FINANCIAL RESOURCES

Associations are sometimes faced with unexpected repairs that are necessary but were not planned for during the budgeting process. Loans to the association provide individual unit owners a comfortable monthly payment and allow associations to complete projects immediately, without depleting association reserves. Here are some important standard terms, loan features and benefits with association loans.

TYPES OF LOANS

• Line of Credit

• Term Loan

• Insurance Premium Financing 

REASONS FOR A LOAN

• Concrete Restoration

• Major Improvements

• AC Repayment

• Elevator Renovations/Repair

• Window and Door Replacement

TERMS

•For special assessment financing, the term of the loan usually is matched to the term of the collection of the special assessment.
• Payments are monthly or quarterly, and generally do not exceed a five-year period.
• During construction and large repair projects, interest-only payments may be permitted  until the project is completed, followed by regular installment payments to reduce the  principal.
• A line of credit or a draw loan also may be used whereby the client pays interest only on the    funds drawn  out.
• Simple interest installment loans also are made to finance hazard and flood insurance  premiums.

INTEREST RATES

Interest rates vary depending on several factors including:

• Dollar amount of the loan

• Repayment term

• Financial status of the association

• Amount of deposits at the bank

• The bank also may lend money based solely on the association’s operating budget.

UNDERWRITING THE LOAN

Many factors are reviewed before approving an association’s loan request:

• Financial condition of the association

• Operating budget

• Balance sheet and income statement

• Reserve accounts

• Delinquency rate

• Community documents

• Board minutes regarding the loan process are reviewed to ensure all legal conditions are  met

• Number of rentals

• Unit value, age of the complex, and management stability

Not all banks cater to community associations. It is important to find a bank that specializes in the needs of community associations and has experience meeting their financial goals. Banks vary on loan terms such as interest rates, repayment terms and closing costs. Working with an experienced bank loan officer will ease the loan process and benefit your association.

Ghertner & Company does not endorse any vendor, but is simply attempting to disseminate as much information as possible about the many issues facing homeowner associations.