Should Your Community Borrow Money for Essential Projects?
By Barry Coleman
You may be asking: Why would my association choose to take out a loan? Deferred maintenance can negatively affect your community association by decreasing property values, creating negative perception in the real estate market, and causing discontent among owners. Also, spreading projects out over time can lead to increased costs and lengthy construction disruption for the community. Lending is a simple solution that can help your community secure funding for an upcoming project.
A loan allows work to be completed right away so your community can enjoy the benefits while dispersing the costs. Some projects that can be financed include repair or upgrade of common elements, engineering fees related to a project, construction defect remediation, and land lease buyouts.
There are several things an association should consider when selecting a lender. Is the lender well respected in the industry? How long has the lender been offering loans to community associations? What are the rates, fees, and terms of the loan? How long will the approval process take?
In addition, it’s important for your lender to understand the differences between community association lending and standard commercial lending. One major difference is related to collateral. There should be no liens against association property or individual homes, and there should not be any personal guarantees required. The loan commitment is essentially against future homeowner assessments.
If you haven’t done so recently, review the association’s most recent reserve study to ensure there isn’t any deferred maintenance in the community. You also should meet with your dedicated association banker for a financial review and to discuss upcoming projects.
If you do not have a dedicated banker, please consider making Pacific Premier Bank your first choice. Contact us by visiting ppbi.com/HOALending, send an email to [email protected], or call (470) 445-1912. We are happy to perform a full financial review to ensure your community is prepared to finance upcoming projects.
Barry Coleman is the senior vice president and director of the community association banking division at Pacific Premier Bank. He works with management companies to help improve efficiencies and ultimately reach their business goals.
The information expressed is being provided for informational and educational purposes only. It is not intended to provide specific advice or recommendations for any individual or business. Pacific Premier Bank does not provide tax, legal or accounting advice and the information contained herein should not be construed as such. You should carefully consider your needs and objectives before making any decisions. For specific guidance on how this information should be applied to your situation or business, you should consult your own tax, legal, and accounting advisors before applying any recommendation. All loans subject to credit approval.