Board Member’s Guide for HOA Loan
Introduction
Serving on a community association board comes with the responsibility of ensuring your property is well-maintained and financially secure. Large capital projects, such as roofing, concrete restoration, plumbing, or new amenities, often require outside funding. Understanding your options will help your board make informed decisions that protect both the property and the residents.
In this blog we’ll explore how to determine repair priorities, build a basic budget, and decide on a loan provider. We’ll prepare you, as a board member, to start the loan process by getting more familiar with the information lenders collect and the significance of each piece of information.
Decide What’s Important
Before pursuing financing, the board should establish clear priorities. Is the focus on safety repairs, beautification, or long-term infrastructure upgrades? Agreeing on what matters most to the community will guide the type and size of loan needed.
The rule of thumb is simple:
Urgent Repairs: Work that has to be done in order to maintain the function of the community. These projects typically have a strict deadline set by county/city inspections.
Optional Repairs: Upgrade and repair projects that are not vital to the everyday functioning of the community, such as landscaping, painting, and other cosmetic improvements.
If reserves are low and delinquency is high → focus only on the most urgent repairs first.
If finances are not limited → optional repairs can be added to the urgent work and tackled at the same time.
Build a Budget
A realistic budget is the foundation of a successful project. Work with your property manager, engineer, or contractor to obtain cost estimates. Factor in reserves, assessment collections, and potential contingencies. A well-prepared budget helps demonstrate financial responsibility to lenders.
Steps to build your budget:
Look at last year’s Profit and Loss statement. It should serve as a baseline for next year’s budget.
Add any future work needed (urgent, optional, or both). Use the Structural Integrity Reserve Study, a consultant, or an educated estimation by the board.
Add financing costs to the total amount of work needed that is not covered by regular monthly HOA dues. Speak with banks or private lenders like Samtov Finance to get an idea of loan terms.
Assume delinquency will rise as HOA dues increase. Factor that into the top-line assessment in your budget.
Have the new budget approved by an accountant before presenting to lenders.
Bank or Private Loan?
Associations typically finance projects through either banks or private lenders.
Banks may offer lower interest rates, but the approval process can take months, and at the end you may still be denied a loan.
Private lenders often move faster and provide flexibility when banks say “no,” though rates may be higher.
Typical Lending Criteria for Bank Loans:
Minimum loan size: typically $250,000
Delinquency: ≤10% (60+ days)
Reserves / liquidity: typically need a minimum of around 20% of annual budget
Size: many banks prefer 25+ units
Assessment burden: banks may flag very large increases relative to regular dues
What to Expect - Bank Loan
With a bank loan, expect a detailed application process, strict underwriting, and requirements such as minimum reserves, no delinquencies, and strong financial history. Approval can take months, and some associations may not qualify if they do not meet the bank’s standards.
Key Terms:
Interest Rates: SOFR + 2.00% to 4.00%. This means the Secured Overnight Financing Rate plus a spread that captures the riskiness of the loan.
Term: 5-20 years
Interest Payment: Options include interest-only, blended interest plus principal, or full amortization schedules.
What to Expect - Private Loan
Private loans are typically faster and more flexible. Boards can expect simplified underwriting, approval within days, and terms designed to match the community’s needs. While interest rates are generally higher, private loans are often the best solution for associations denied by banks or facing urgent repairs.
Private lenders fit the loan structure specifically to the needs of the association. At Samtov Finance, we help associations by building customized payment plans, including prepayment options, reserve funding, and tailored loan terms. We even help associations improve their financial standing and later refinance our loan with a traditional low-rate bank loan.
Key Terms:
Interest Rates: 12%-15%
Term: 3-5 years
Interest Payment: Typically full amortization
Prepayment: Often available as an option
Documentation Needed - Start Early
Both banks and private lenders will require similar documentation. Reach out to your accountant and management companies to start collecting this information early. Oftentimes, the loan process gets delayed due to incomplete or missing documentation.
Common Docs Needed:
Current and Next-Year Budget
Repair List and Cost Estimates
Assessment Summary (special and regular)
Financial Statements (Income Statement and Balance Sheet, last 24 months)
Bank Statements (all accounts, last 24 months)
Tax Returns (last 2 years)
Aging Report (30/60/90 day delinquencies, 24 months)
Board Meeting Minutes (last 3 years)
Insurance Policies (current)
Loan Purpose Statement (with past requests and outcomes)
Reserve Study (if available)
Corporate Resolution (board authorization to borrow)
Governing Docs (Bylaws, Articles of Incorporation, Declarations, Amendments)
Construction Contract(s) and Contractor Insurance
Free Advice at Samtov Finance
Navigating the loan process can be overwhelming. At Samtov Finance, we offer free consultations to help your board understand its options and prepare for funding. Whether you are exploring a bank loan or a private solution, our team is here to guide you from start to finish.
We are a highly-trusted HOA loan provider with over 20 years of real estate experience across the USA.
Contact us: info@samtov.com