When Associations Borrow What to Know Before Taking Out a Loan

Whether it’s a renovation, an emergency repair, or anything in-between, condos, cooperatives, and homeowners’ associations are rarely not spending money on something. And while they may have reserves on hand to pay for its latest project, money often needs to be scraped together pronto in order to cover unexpected expenses, delays, or other issues. 

While special assessments to raise needed funds are a common fact of life in multifamily communities, coming up with a hefty amount in a relatively short window of time isn’t always realistic, depending on the means and limitations of individual residents.  

An alternative to assessment is to take out a loan from a bank, which the association can then pay back over time— with interest—often by making a marginal increase to residents’ monthly dues. This can often be an appealing option—but it’s important for boards to do their due diligence and weigh the pros and cons of assessment versus borrowing before entering into any long-term financial arrangement.

Why Borrow?

There are a number of reasons why a board might want to take out a loan to fund even a fairly modest project. But realistically, the higher the price tag, the more sense it makes to bring in an outside financier.

“Associations typically borrow money when they have a large capital need, such as a roof, siding, a roadway, or something similar,” explains Lisa Wagner, VP and Business Development Officer with ConnectOne Bank in Englewood, New Jersey. “Existing cash saved in a capital reserve account might be short, or the association might not want to deplete all of those funds, so it will borrow from a bank.”


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  • Even if our co-op wanted to borrow money, it would not be able to do it. Investor rate >=50%, very high unpaid property tax balance, and under insured. It for the same reasons no one can get a mortgage for buying or refinancing.
  • Is legal for a condominium to us the existing remains of a loan to build up its reserve? Example: HOA takes out a $800,000 loan but only uses 400,000 for capital improvements They then take the remaining $400,000 and put it in the condominium reserve funds. Now they are paying 5% on 800,000 instead of $400,000