Special Assessment-loan or line of credit? (FL)

Started by ChrisH23 • 8 replies • 168 views

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ChrisH23 (Florida)
Posts: 2

Posted:

We have a small complex, about 50 units and have passed a special assessment which about doubles our monthly fees.
After some grumbling of course we all have agreed that this is very much needed due to structural issues and the age of our condo.
It is only a two story condo and well-inland so it is not a state requirement but of course it needs to be done.

We have gotten quotes and have knowledgable people on the board/condo owners, etc so we feel confident in what we will be doing.

However a couple of banks have not approved us because it is about a 50% rental community (units are about $250K-300K) and it will about double our assessment.
But they are saying it is a loan and not a line of credit. It will be just under $1 million.

I'm not sure if our property manager is not advising them correctly or if it should be a line of credit and not a loan??
It is a large management company so I would hope they would be familiar which is better.

Any comments on the best way to get approved for this? We have been paying the special assessment for several months now so the community is building its savings in the meantime but we want to get things started asap.

Thank you.

TimB4 (Tennessee)
Posts: 21,059

Posted:

A loan incurs interest that has to be repaid.
Typically, if budgets are done properly, you will have to raise assessments to meed the new expense of a loan payment.

A line of credit has the same issues as a loan and the same result of needing to increase assessments to make payments.

Unless there was an unplanned expense, or if the amount you are placing into reserves did not keep up with inflation, the need for a special assessment is an indication that your assessments are simply too low.

In addition to dealing with your current issue, you should have an updated reserve study done and establish a plan to fully fund (meaning putting enough money away for future planned maintenance, expected repairs and replacements) the reserves.

A line of credit is based on equity in the building.
A loan is based on securable assets or (typically) a higher interest rate with nothing being put up as collateral.
I have not heard of an Association obtaining a line of credit.

An AI response:
A condo association loan provides a lump sum for specific, large, one-time projects (e.g., roof replacement) with fixed, scheduled repayments, whereas a line of credit (LOC) offers flexible, revolving access to funds up to a limit for emergencies or cash flow gaps. Loans offer lower, fixed rates for long-term projects, while LOCs feature variable rates and are ideal for short-term, uncertain expenses.

See: HOA & Condo Finances: Why Lines of Credit Can Be a Trap (and Smarter Alternatives) from a management company

DeanJ
Posts: 1,786

Posted:

Quote:

Posted By ChrisH23 on 01/30/2026 9:58 AM
We have a small complex, about 50 units and have passed a special assessment which about doubles our monthly fees.
After some grumbling of course we all have agreed that this is very much needed due to structural issues and the age of our condo.
It is only a two story condo and well-inland so it is not a state requirement but of course it needs to be done.

We have gotten quotes and have knowledgable people on the board/condo owners, etc so we feel confident in what we will be doing.

However a couple of banks have not approved us because it is about a 50% rental community (units are about $250K-300K) and it will about double our assessment.
But they are saying it is a loan and not a line of credit. It will be just under $1 million.

I'm not sure if our property manager is not advising them correctly or if it should be a line of credit and not a loan??
It is a large management company so I would hope they would be familiar which is better.

Any comments on the best way to get approved for this? We have been paying the special assessment for several months now so the community is building its savings in the meantime but we want to get things started asap.

Thank you.

Lenders are in business of assessing risks. Maybe the lenders are assessing the risk of a line of credit accurately and have determined allowing your HOA a $1 million limit on a credit card is not a good deal for them. If you want the funds, you may have to have equity in the deal. .

DeanJ
Posts: 1,786

Posted:

Quote:

Posted By TimB4 on 01/30/2026 11:05 AM
A loan incurs interest that has to be repaid.
Typically, if budgets are done properly, you will have to raise assessments to meed the new expense of a loan payment.

A line of credit has the same issues as a loan and the same result of needing to increase assessments to make payments.

Unless there was an unplanned expense, or if the amount you are placing into reserves did not keep up with inflation, the need for a special assessment is an indication that your assessments are simply too low.

In addition to dealing with your current issue, you should have an updated reserve study done and establish a plan to fully fund (meaning putting enough money away for future planned maintenance, expected repairs and replacements) the reserves.

A line of credit is based on equity in the building.
A loan is based on securable assets or (typically) a higher interest rate with nothing being put up as collateral.
I have not heard of an Association obtaining a line of credit.

An AI response:
A condo association loan provides a lump sum for specific, large, one-time projects (e.g., roof replacement) with fixed, scheduled repayments, whereas a line of credit (LOC) offers flexible, revolving access to funds up to a limit for emergencies or cash flow gaps. Loans offer lower, fixed rates for long-term projects, while LOCs feature variable rates and are ideal for short-term, uncertain expenses.

See: HOA & Condo Finances: Why Lines of Credit Can Be a Trap (and Smarter Alternatives) from a management company

Most people owning a $250,000 property with their other debts are unable to walk into their bank and obtain a $19,000 unsecured line of credit. But, they think a not for profit HOA should be able to walk into their bank and obtain the unsecured funds for them and 49 of their neighbors.

KellyM3 (North Carolina)
Posts: 2,239

Posted:

Chris,

It sounds like you're doing the best you can do for an HOA strategy. The bank knows the rental ratio, it knows the loan is for "structural issues" and it knows that you're doubling monthly assessment rates if you get a loan of just under $1 million. It sounds like a high risk loan in any event for any bank.

In my opinion, what you'd want is a fixed term, HOA loan and not a line of credit. And, you'll need to find a bank that does business with HOAs as HOA loans are exactly like traditional commercial loans as it can be difficult to attach collateral to back the loan in the event of default.

You may already be on the best course of action.

PatJ1 (North Carolina)
Posts: 15

Posted:

Our HOA board, $425,000 annual budget, 144 unit condos, took out a $1 million loan WITHOUT owner approval. We didn't need that much. The work could have been done over a few years, instead of all at once.

The first year was a draw year with only interest payments. After the first year, it turned into a 7-year term loan with monthly payments. It was collateralized by future assessments.

DavidJ21 (Arizona)
Posts: 22

Posted:

I went through this with my Condo for some big capital projects and was personally told to go pound sand by banks.

Why not just issue a special assessment? That way owners that can pay, can pay. Other owners can secure their own financing.

To me, taking a loan just complicates resales.

MichaelS56 (Minnesota)
Posts: 859

Posted:

The 2026 project of securing a significant loan for this condo is a typical issue that is usually caused by previous Board members who kicked the can of repairs down the road. Assessing all of the owners starting long ago for the needs of today is something that is usually fought by the owners. Volunteer Board members are in a difficult situation having to increase the Replacement Reserve for future repairs is a challenge. I feel sorry for the present Board members that have been given this problem to solve. A very common HOA issue.

DeanJ
Posts: 1,786

Posted:

Quote:

Posted By MichaelS56 on 02/09/2026 5:48 AM
The 2026 project of securing a significant loan for this condo is a typical issue that is usually caused by previous Board members who kicked the can of repairs down the road. Assessing all of the owners starting long ago for the needs of today is something that is usually fought by the owners. Volunteer Board members are in a difficult situation having to increase the Replacement Reserve for future repairs is a challenge. I feel sorry for the present Board members that have been given this problem to solve. A very common HOA issue.

The issue is at least some of the owners would have been willing to properly fund reserves. It is usually a very vocal minority who can’t manage their own financial affairs that strongly object. There are also owners who can write a check for their share or could 2nd mortgage their unit to pay the assessment at interest more favorable than a commercial rate the HOA will be able to negotiate.

When the HOA assumes the risk for a pool of owners, each owner then becomes responsible for those who ultimately default. Which is great if your credit is shot because you basically forcing others to co-sign for a loan for you. Also this can become a recurring issue. Instead of retiring liabilities and reserve funding for future liabilities, assessments are used to pay a loan with the expectation the HOA will borrow more money when needed. In the end, all the property values are reduced because of the excessive assessments and debt of the HOA.

In my view, this is an individual owner debt and each owner should remain responsible for funding a special assessment and the HOA should not seek financing,

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