The first thing an HOA board should ask about are details around the interest rate. Is the rate fixed for the life of the loan or will it reset at some point in the future? Will our HOA have to pay any origination points at closing? If so, how many and how do they factor into the effective interest rate? If there is construction involved, how and when will the permanent loan’s rate be established?
An HOA must have the proper authority to enter into a loan agreement on behalf of our HOA. Do your bylaws allow the HOA to do this? Do they require a member vote? If so, what vote results are actually needed? And do we have a legal opinion affirming this?
A lender will want to understand the association’s plan for repayment. If the HOA has a high delinquency rate, little or no money in reserve and an entirely disengaged membership, lenders will be skeptical. Think about these things before approaching a lender. Is our financial house in order? Do we need to clean up delinquencies? Should we start a serious member communication initiative?
HOA loans are often repaid through changes in HOA dues. Lenders will be skeptical of proposed HOA increases if they appear to be out of line. How competitive is our current dues structure? Are members receptive to the proposed increase? You should know these things before approaching a lender.
Why are we asking for a loan? Like any financial transaction, board members should have an elevator speech prepared to concisely state the purpose of the loan and the benefits to the association.
Arch Capital Solutions acts as an advocate for your HOA. We have relationships with lenders who specialize in HOA loans.
In many states, the board may actually have a fiduciary duty to make financial decisions that are in the best interest of their members. Arch Capital Solutions can satisfy those fiduciary duties acting as the HOA’s financial advisor. We help HOAs obtain financing and choose the best proposal from multiple lenders.