Even though most Homeowner Associations operate as non-profit-corporations, owners and boards should view the HOA’s financial activities through a business lens. Leaders should embrace a business-oriented mindset in directing these organizations. HOAs generate revenues, incur expenses, and have long-term planning responsibilities like traditional businesses. However, they stop budgeting at the profit line.

Volunteer boards may keep salary costs low, but a lack of compensation can translate into under-resourced administration. Generally, the downsides to volunteer-led organizational structures are limited human resources and internal expertise. Part-time volunteers may also be less attuned to current industry trends and innovations.

For example, businesses have access to countless financial products. Some have unfettered access to complex capital markets. Treasury departments utilize these products and services to assess and manage financial risks for their corporations. 

Even though HOAs are more limited with their menu of products and services, they can still borrow money. Well-run HOAs can often qualify for a line of credit, a medium or long-term loan, or a combination. The ideal loan type is dependent on the association’s needs.

Types of HOA Loans: Line of Credit (LOC)

If an association faces a short-term funding gap that needs remedying within a year, a line of credit may be a perfect solution. HOAs can use lines of credit for rainy day types of borrowing. When a condominium or HOA has depleted a reserve account or needs breathing room for unexpected expenses, a line of credit may be ideal. HOAs pay interest as they use or draw-down funds. 

HOAs can view LOC terms as a bit similar to a credit card. Lenders will only impose an interest charge on the actual borrowed amount. These loan structures typically need to be renewed annually. The interest rates for LOCs are often subject to change monthly. They have attractive interest rates but may not be suitable for long-term projects because of their annual renewals and potential interest rate fluctuations.

Types of HOA Loans: LOC With Conversion

More commonly, associations opt to utilize a line of credit during a large project’s construction or renovation phase. The LOC converts to a longer-term loan upon completion of the project. Under this program, an association can save interest expense by only paying interest on the borrowed funds. However, they should be sensitive to the mechanics behind fixing the interest rate on the longer-term loan. 

In some instances, the HOA may be incurring interest rate risk if the rate for the longer-term loan isn’t established until the loan converts from a line of credit to a term loan. In these instances, the actual monthly principal and interest payments won’t be fixed until the interest-only period ends.

Types of HOA Loans: Medium-Term HOA Loans

Sometimes associations find themselves in a short-term bind. Perhaps they only need funds for a 3-5 year period. Monthly payments on medium-term loans tend to be high. But total interest costs are low when compared with longer-term loans. Medium-term loans allow associations to extinguish their debt in a shorter period.

Types of HOA Loans: Long-Term HOA Loans

On the other hand, term loans are better suited for longer-term projects such as land acquisition or extensive structural repairs. Customized maturity schedules ranging from 7 to 20 years are attractive for long-term loans. 

Longer-term funding structures typically have higher interest rates and total interest costs, but monthly payments are more manageable.

With any loan, lenders will be looking at various detailed financial information to determine how associations will repay the debt. Fortunately, there are many highly customizable loan options designed to meet the borrowing needs of most HOAs.

Success-based fee structure:

At Arch Capital Solutions, we believe our results speak for themselves. We only invoice our clients after successfully closing their loans. We never charge an hourly or retainer fee, and we are 100% there to help and support the association through the entire loan process.

Contact us today. Let’s discuss funding solutions for your association!


Arch Capital Solutions specializes in arranging loans for homeowners and condominium associations throughout the country.