Borrowing money for capital projects has become common practice in the community association industry. Unlike a special assessment, a bank loan allows unit owners to pay for the construction project over a long period of time and to spread the cost of an improvement over generations of homeowners, so that work is paid for by all the people who enjoy the benefits of it. Of course, loans do come with interest and fees. But with interest rates at historic lows and a competitive banking landscape driving down the cost of capital, accessing financing has become an attractive funding strategy.
If you work with a property management company that is large enough to leverage relationships with financial institutions, you may be able to get better rates working with that company than on your own. They may be able to assist in connecting you with the most favorable institutions, save you money on fees and even help with the application process. “One of our communities, Spire Residential, needed a loan for an unexpected project. Working with FirstService Financial’s recommendations, they were able to borrow $850,000 at a great interest rate and for only $500 in closing costs,” explained Jorge Dominquez, regional director at FirstService Residential. “The process took less than 30 days, start to finish, and the board was pleased to have this option rather than depleting their reserves or levying an assessment.”
Again, make sure you consult with your association attorney and governing documents before beginning to apply for a loan to ensure you don’t run afoul of your association’s covenants and bylaws.
There are three major benefits to using a loan to fund capital improvements:
Capital improvements, and the costs of them, are inevitable. When your association has to invest in its property, no matter the reason, the financing for that work must be considered as carefully as the work itself. Whether you choose to use your reserve fund, levy a special assessment, take out a loan or some combination of the three, it will affect the well-being of your association in a variety of ways. A financial management expert can provide advice on the risks of each and help you decide which is the best option for your community.
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