Just like the other 19,000 Chicagoland homeowners associations (HOAs), your board needs to manage frequent damage to properties from wind, hail and the Midwestern freeze-thaw cycle. Sometimes projects can be paid for out of residents’ monthly HOA fees and HOA reserves. But for larger projects, such as replacing or repairing a roof, balconies, garages, elevators, windows, HVAC systems and masonry, your HOA may need to explore another option—an HOA loan.
Read on to learn about the benefits of HOA loans, loan terms and repayment options, how to apply and what to consider when choosing an HOA loan provider.
The benefits of HOA loans
HOA loans help HOAs get the money they need to make repairs and improvements while giving residents time to repay their portion of an assessment. Below are some specific benefits.
Benefit #1: HOA loans allow HOAs to get access to money quickly.
Once a special assessment is passed, your HOA will likely want to get repairs and improvements started quickly. “Typically, HOA loans are approved in eight to 10 business days,” says Timothy J. Haviland, Senior Vice President of Commercial Lending at Byline Bank. “However, only a few banks in the area are familiar with the HOA loan process, which may make the timeframe longer.”
Benefit #2: HOA loans reduce the financial burden on individual members (as well as remove personal credit risk).
“Writing a check for $10,000 or $15,000 may be impossible for some residents,” Haviland says. If a special assessment is passed, and an HOA loan is not used, residents may need to get home equity loans to come up with a large assessment fee. Not only does this take time, but residents might not get approved, depending on their credit scores, how much equity they have in their home and what their income is.
However, an HOA loan is based on the financials of the HOA, rather than the residents’ financials. “Once approved, residents’ payments can be spread over five, seven or 10 years, which makes the fee much more manageable,” Haviland says.
Benefit #3: HOA loans decrease the exposure to inflation-related cost increases.
Rising prices mean that delaying work even by six months can change the cost of a major improvement. “HOA loans provide a set amount of money now so that prices can be locked in,” Haviland says. This provides peace of mind to the HOA, given that they don’t have to worry about finding additional association money for delayed projects.
HOA loan terms, requirements and repayment options
As with any loan, an HOA loan has terms, requirements and a set repayment timeline. For instance, consider the characteristics of an HOA loan from Byline.
Loan terms:
- Amount: $100,000 to $10 million
- Structure: Non-revolving line of credit (NRLOC) during the project phase (up to two years), after which it converts to a fully amortizing term loan
- Repayment: Up to 10 years, fully amortizing
- Rate: Fixed or floating for NRLOCs; fixed up to 10 years for term loans
Association requirements:
- Location: Chicagoland
- Size: Minimum of 25 units
- Debt service coverage: 1.15x
- Delinquency ratio: ≤10% of units past due greater than 60 days
Loan requirements:
- Collateral: Assignment of all assessments, including all special assessments, against the units of the association plus a pledge by the association assigning the collection rights and securing a first lien against all corporate assets through a Uniformed Commercial Code (UCC) financing statement
- Documentation: Prepared by outside legal counsel
- Monitoring: Annual financial statements with current year budget, delinquency reports, board member contact information, unit owner listing and certificate of insurance
How to apply for an HOA loan
Once you know the size of the loan you’ll need, applying for one is just a matter of pulling some documentation. This information is readily available from your property management company and would include the following:
Annual budget for the current year
Year-to-date financial statements, including balance sheet and income statement
Year-end financial statements for the prior year, including balance sheet and income statement
The most recent assessment aging delinquency report
Property description including the number of units, number of rental units and the legal name and address range of property
Requested loan amount, description of project and estimated costs
The most recent reserve study
Special assessment plans, such as passing a special assessment or increasing regular monthly HOA fees for repayment of the loan
How to choose an HOA lender
You have options when choosing an HOA loan provider. Here are some questions to ask a potential HOA lender:
- How many HOA loans have you processed? Experience counts. A knowledgeable lender can guide your HOA to getting the best rate and a quick loan approval.
- How quickly can you get funds to our contractors? Speed matters in today’s marketplace where labor shortages limit the number of contractors available. Paying contractors promptly and on time makes them much more likely to work on your HOA’s project.
- Will the loan officer and customer service team be available to handle our day-to-day questions? Make sure you have a designated first point of contact to reach for immediate assistance. This ensures that any issues are handled swiftly and easily.
- Do you have references from property management companies? Consider checking three references to learn more about a lender’s experience.
Byline Bank for your HOA loan
Byline Bank combines the best of both worlds—the nimbleness of a community bank with the assets, expertise and competitive interest rates available from a publicly traded company. Since 1914, we’ve been helping Chicagoland communities grow.
“You can expect prompt attention to your loan request and a high level of quality service throughout the loan process,” Haviland says.
Once the loan is approved, Haviland or one of his team members will be designated as the primary contact for your HOA. “We have a consistent track record of getting HOAs the money when they need it because our work doesn’t end when we get the loan in place,” Haviland says.
This high level of personalized, quality customer service is something you can only find at a community bank. “At Byline Bank, we are committed to the community association industry, and it would be our pleasure to work with you,” Haviland says.
Do you want to expand your community association reserves or make community updates? Byline’s Community Association Financing team is here to help. Get in touch.
