Should Your Community Borrow Money for Essential Projects?

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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. Spreading projects out also leads 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. You also should meet with your 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, emailing HOALending@ppbi.com, 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

Barry Coleman is the senior vice president and director of the HOA and property banking division at Pacific Premier Bank. He works with management companies to help improve efficiencies and ultimately reach their business goals. Coleman has worked in the common-interest community management industry for 14 years and has more than 20 years of banking experience. He holds a bachelor’s degree in business administration from Kennesaw State University and a diploma from the Graduate School of Banking at Louisiana State University.