Community associations are essential to maintaining the special features that make a community or development both desirable and functional to its residents. But often times, large and unexpected expenses – from launching a large-scale capital project to replacing a damaged club house roof or fixing a major pool leak – can leave association boards of directors weighing the best way to cover costs, while remaining solvent in both the short- and long-term.
While using cash reserves is one option, many association boards realize that investing cash on hand may not fully cover the anticipated costs of the project or more commonly may severely limit the association’s ability to maintain services and amenities while continuing to meeting existing financial obligations. Similarly, depending on the size of the project and expense, levying a one-time special assessment may in itself become too burdensome for owners to absorb.
In either case, turning to alternative funding by reaching out to a bank that specializes in association lending can be in the associations – and the owners – best interests by helping bridge the financial gap that exists.
Why Borrowing Makes Sense
Misconceptions sometimes exist among association boards, management and homeowners when it comes to association lending. In reality, smart and responsible borrowing delivers the flexibility and opportunity to distribute the cost of large-scale and long-term projects over time to lessen the immediacy of financial need.
For associations, it’s also a way to pay for a project, while spreading its cost evenly among homeowners over the course of a period of time, instead of assessing a one-time charge to homeowners in that moment.
Determining Whether a Loan Will Work for Your Community
Following an in-depth assessment of anticipated costs associated with a specific project, a frank discussion between the association’s board of directors and its attorney are vital to determining whether the association is in a position to take out a loan – and for how much and how long. Specifically, understanding the association’s state of liquidity, or money in their reserves, will establish a benchmark from which to approach a bank with a loan request.
In addition to reviewing the association’s governing documents to determine the association’s capacity to enter into a loan agreement, it is wise to explore options that will be used to repay a loan. This could include an increase to regular assessments or a special assessment paid over a specific period of time. And while not necessary to begin the discussion with a lender, having a clear direction on how to repay the loan is helpful, especially since association boards and/or homeowners themselves are vital to approving the loan. It also reinforces to the lender that there is significant community support and commitment to repay the loan.
Beginning the Conversation
Not all lenders are created equal and not all understand the unique nuances of working with community associations. Alliance Association Bank specifically caters to the needs of the association, providing flexible and creative financing solutions with an expedited underwriting and approval process. Our relationship managers will work with the association boards to discuss the different types of lending options available, be they term loans or various lines of credit, including construction and disaster recovery, and the benefits each brings to the borrower. Alliance Association Bank offers a wide range of innovative products and services designed to create efficiencies, reduce costs and increase revenue.
Also, a lender’s familiarity with the scope of projects an association typically engages in greatly affects their ability to right-size both loans and terms. The Association Lending team has extensive experience handling loans for deferred maintenance projects, common area improvements, construction defect repair, insurance premium financing and refinancing of existing loans.
For associations faced with large-scale costs, having a knowledgeable, experienced team on their side is a practical and forward-thinking solution. Alliance Association Bank’s team delivers agile funding options that meet both the association’s business goals and commitments to the homeowners.
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