Project Funding Assistance
It is not unusual for a homeowners association facing extraordinary construction costs to look at getting a rehabilitation or reconstruction loan. There are a number of advantages, not the least of which is that it affords the membership the opportunity, without having to rely on their own credit-worthiness or steam, to pay for the construction work over a long period of time. It gives the Board the comfort of knowing that the money will be there when needed and allows the Board to enter into contracts for substantial works of improvement without fearing the Association is likely to run into financial problems trying to collect a large out-of-pocket special assessment from each of the individual owners.
There are many kinds of loans available for HOAs with HOA-friendly banks (those that have a division specifically dealing with HOA loans). There are fixed and variable interest loans. Fixed of course, provides stable long range planning as the payment is predictable for a specified period of time. Variable interest rate loans allow for repayment and interest to be based on some identified standard, generally a federal banking rate. They are historically lower interest than fixed rate loans although this may not always be the case today.
Most bank loans to Associations require a rather rigorous application process and the financials, delinquency rate, reserve study, cash flow and other financial information are examined. David Bach & Associates helps Associations put together this information, and assist associations in amending its governing documents.
There are a number of ways to fund the loans. Some are funded by special assessment, meaning that an assessment must be approved by the members and then the assessment is repaid by payments made toward the loan. Sometimes the loan repayment is made by an increase in the regular assessment. Sometimes there is a combination of the two.
It is not uncommon for an association to underestimate the reserve contribution, or to have failed to plan for replacement of a major component with a 30- to 50-year useful life. For these types of situations, David Bach & Associates assists in obtaining major project financing.
