The website rules donât allow use of actual names of communities or vendors, so you may want to start with the associationâs bank and ask around for others â look for a bank thatâs had a considerable amount of experience working with HOAs and condos.
Our community hasnât taken out a loan (a miracle, considering some of the other financial drama weâve dealt with), but in looking at older conversations where the board is now considering large loans for repair projects, I would think a bank would look at this similar to what they do for any business. Of course, the more money you ask for, the harder the bank will look at your finances.
From my days as a Board treasurer (10 years of that!), I know one thing that worried me to no end was the delinquency rate. At that time it was pretty high (well over 10%) and not only did it affect our ability to do certain repair projects, we had to increase assessments regularly to ensure things like our reserves (also low because of delinquencies) were funded.
In some cases there was a discussion on skipping reserve funding â they didnât do this when I was treasurer, but I know it happened before I joined the board, and weâve had a hiccups over the 12 years since I left. The bank will probably want to see your latest reserve study (something no more than five years old, along with the income/expense reports, tax returns and balance sheets to see if youâve been making regular deposits. Gather together 1-3 years of financial information to get started.
If you havenât have an audit recently, this may be a good time to get one. This could ensure that whatever financial controls you have regarding spending and preventing waste and fraud are present and working â or if you need to make some adjustments sooner rather than later.
Iâve heard various arguments about owner-occupancy percentages â generally, the higher (50%+) is better because communities with lots of rentals can also mean a higher risk of instability. That was another issue in my community, so prepare for your bank to ask about this as well.
Double-check your documents to make sure the board has the authority to take out the loan. Even if you have it, getting a homeowner vote of confidence would be very helpful â itâll make you present the numbers and be candid with the communityâs financial standing. They may not be happy with everything they hear, but they have to learn whatâs at stake because keeping the place in order is what the associationâs finances are supposed to do. If they have a better idea, they can always bring it up. Prepare for several townhall meetings to discuss the pros and cons of everything. Whether they do or not, you canât expect your property values (whatever those are) to go up and up and only pay $1.50 in assessments.
Which reminds me â loans mean interest, so assessments are going to go up to cover the payments, reserve funding AND the routine services. Your homeowners need to understand that so they wonât scream (too loudly) when they see subsequent budgets. They have to choose â if this is a roofing project, they have to pick between having a roof that doesnât leak and something else. This may be a good time to take a deep dive into the budget to see where you can save money.
Ask your friends who also live in HOAs whether theyâve gone through this process and what they learned (good and bad). I suspect lots of people on this website will weigh in, but getting local perspectives is always good â and you may get a referral to a bank that will help. Good luck!