Advantages of Homeowners Association Loans: 3 Reasons
Three reasons associations borrow: to avoid a lump-sum special assessment, to fund planned capital work on schedule rather than when reserves allow, and to spread a large cost so dues stay predictable. Loans start at $100,000 with no set maximum and repay over 5 to 20 years.
Homeowners associations are notoriously stretched thin when it comes to finances. As not-for-profit businesses run by volunteers, getting the math right can be incredibly challenging. Despite their best efforts, many HOAs struggle to support community financial needs. Whether the buildings are degrading faster than expected, the community wants to add a new swimming pool to the property, or delinquency rates took a turn for the worst, any number of scenarios can impact an HOA’s
As homeowner associations age, problems become more visible (and more expensive!) In an ideal world, the HOA has planned ahead for this and is working with a robust budget and reserve fund that can support community costs. But too often, many HOAs realize that their cash flow and reserve funding structure isn’t where it needs to be, and have to consider alternative funding options. Sometimes, that option is some kind of HOA loan, and here’s why:
HOA Loans Help Avoid Special Assessments
When HOAs recognize that their funds aren’t going to pay the bills they expected them to, the most common solution is typically to issue a special assessment. It’s an attractive option–straightforward, repeatable, and doesn’t come with any kind of interest or late fees for the community…but those only get communities so far, so quickly.
Special assessments can cause extensive damage within a community, especially if they’re over utilized. HOAs that frequently change what each homeowner owes per month see serious ramifications from the homeowners. If board members cannot accurately predict the financial needs of the community, why are they on the board?
Loans or lines of credit offer communities financial stability without hurting homeowners’ wallets.
HOA Loans Offer Funding for Planned Capital Improvements
Some communities rely on outside financial assistance for planned changes to the community. Capital improvements are a necessity in HOAs–they add safety and long-term value to the property, and give the board leverage to increase monthly assessments. An HOA loan is a reliable method of funding capital improvements without burdening the membership. Because of the flexibility of HOA loans, community associations can use these funds for nearly any project, from something as large as acquiring underlying or adjacent land, to more common improvements such as street resurfacing, and even smaller projects like new equipment purchases. The possibilities are nearly limitless and help support a board’s bottom line of supporting the community.
HOA Loans Help Communities Balance Expenses
Budgeting is complicated and for many HOAs, it tends to be inaccurate. Sometimes those inaccuracies can be solved with a special assessment, but when that option isn’t feasible, communities should consider alternative funding options.
If an association is struggling with cash flow, the community can borrow money to right-size cashflow, pay off existing debts from previous projects, cover hikes in insurance premiums, or strategically manage ongoing major expenses that are being piecemealed. By borrowing money, an HOA can set those payments more securely and pay everything all at once.
While a long-term loan may not be suitable for this issue, a medium-term loan is a viable solution to help HOAs right the boat. This offers short-term financial support while the board focuses on readjusting their budget and future cost projections.
Is an HOA Loan Right For Your Community?
When properly used, an HOA loan can provide a much-needed financing solution that allows the board to complete projects and remedy financial issues without burdening owners with cash assessments. HOA Loan Services offers specialized assistance to HOAs and condo associations across the country. Contact us today to schedule your free consultation to figure out what kind of HOA loan is right for your community.
Boards also ask
Why do associations borrow money?
To fund major capital projects, cover emergency repairs, or avoid a lump sum special assessment that asks every owner for a large payment at once. Waiting is also a decision — deferred work rarely gets cheaper, and an unsafe condition can force the timeline for you.
Should we take a loan or levy a lump sum special assessment?
They fund the same project and feel completely different to owners. A lump sum special assessment asks every owner for a large payment at once, which is where boards meet the hardest resistance and where owners on fixed incomes get hurt. A loan spreads the same cost over years, so the monthly impact per unit is far smaller, and it does not depend on every owner having cash available. The tradeoff is interest: over the life of the loan you pay more in total. Some communities are better served by a phased project or a smaller assessment paired with a smaller loan. We model all of them side by side so your board decides with the same numbers in front of everyone.
What are typical loan terms?
HOA loans typically run 5 to 20 years, depending on project scope and your association’s financials. Longer terms are harder to obtain, so we structure around what lenders will actually approve.
How much can we borrow?
We finance projects from $100,000 with no set maximum. Most associations we work with borrow between $500,000 and $5 million, though we regularly fund smaller projects.
Tell us about your project.
We will tell you what’s realistic. No upfront cost, no obligation.