The Complete Pre-Loan Guide for HOA Board Members
A plain-language guide for HOA and condo board members. No finance degree needed.
Your building needs a new roof. Or the parking lot is crumbling. Or the elevator just failed its inspection. And your reserve fund does not have enough to cover it.
Now what?
You have basically three options: ask every homeowner to pay a large lump sum (called a special assessment), delay the repairs and hope for the best, or take out a loan. This guide walks you through how to figure out which option makes sense for your community, and if a loan is the right move, how to get one.
Table of Contents
Why Associations Take Out Loans
Check Your Financial Health First
The One Number That Matters Most: Your Reserve Fund
Signs Your Association Needs a Loan
Types of Loans Available to Associations
Bank vs. Private Lender: Which Is Right for You?
How to Get Ready to Apply
Real Examples with Real Numbers
Common Questions Answered
1. Why Associations Take Out Loans
Taking out a loan does not mean your association is in trouble. It is often the smartest financial move a board can make. Here are the most common reasons associations borrow money:
The reserve fund is not enough to cover a big repair. This is the most common situation. More than 70% of associations in the U.S. do not have enough saved up.
Something broke and it needs to be fixed now. Roofs, elevators, and parking structures do not wait for your next budget cycle.
A special assessment would hurt too many homeowners. If asking each unit to pay $4,000 or $5,000 upfront seems unrealistic, a loan can spread that cost out over years instead.
You have a planned project and want to start now. A loan lets you move forward on improvements like a pool renovation or new HVAC system without waiting years to save up.
2. Check Your Financial Health First
Before you think about applying for a loan, you need to know where your association stands financially. You do not need to be an accountant. You just need four documents.
Document 1: Your Budget vs. Actual Spending
This shows how much money came in from homeowner dues and how much went out to pay for operations. If you collected more than you spent, that extra money (called a surplus) is what you will use to repay a loan. If you spent more than you collected, that is a problem you need to solve before borrowing.
Document 2: Your Balance Sheet
Think of this as a snapshot of everything the association owns (bank account balances, money owed to you) versus everything it owes (unpaid bills, existing debt). It tells you the overall financial picture at a given moment.
Document 3: Your Delinquency Report
This shows how many homeowners are behind on their dues. Lenders care about this a lot. If more than 5% of your units are behind on payments, some lenders will not approve you. If it is above 10%, most traditional banks will say no (hint: private lenders may say yes).
Document 4: Your Reserve Study
This is a professional report that looks at all the major things in your community (roof, elevators, parking lot, pool, etc.), estimates when they will need to be repaired or replaced, and tells you how much money you should have saved. It also gives you a "percent funded" score, which we will cover in the next section.
3. The One Number That Matters Most: Your Reserve Fund
The single most important number in your financial picture is your percent funded ratio. This tells you how full your reserve fund is compared to where it should be.
How to Calculate It
Divide your current reserve balance by the amount your reserve study says you should have. Then multiply by 100.
Example: Your reserve account has $215,000. Your reserve study says you should have $620,000. Divide $215,000 by $620,000 and you get 0.347. Multiply by 100 and your percent funded ratio is 34.7%. That means your reserves are significantly underfunded.
What Your Score Means
100% or above: You are in great shape. Reserves cover everything they should.
70% to 99%: Healthy. You can handle most expected repairs.
30% to 69%: Underfunded. A major repair could lead to a large special assessment. A loan may make sense.
Under 30%: Critically underfunded. Repairs are likely being deferred. A loan is probably necessary, and speed matters.
A Real Example
A condo association in Tampa with 84 units had $201,000 in reserves but needed $890,000 to be fully funded. Their percent funded score: 22.6%. They had two urgent projects: elevator modernization at $215,000 and a roof replacement at $340,000. Total cost: $555,000.
Asking each homeowner to pay their share upfront would have meant a bill of $6,607 per unit due within 90 days. Many homeowners simply could not afford that. Instead, the board got an loan at 7.5% over 10 years. The monthly cost per unit: $78.57. That is a number most homeowners can manage.
4. Signs Your Association Needs a Loan
Not sure if borrowing is right for your situation? Here are clear signs that a loan is worth exploring:
Your reserve fund is below 50% funded and you have a major repair coming up in the next few years.
You have a repair that needs to start within 60 days and there is not enough time to collect a special assessment.
A special assessment would cost each homeowner more than $3,000 to $5,000 upfront.
A large portion of your community is on a fixed income and cannot absorb a big one-time bill.
Delaying a repair is making it worse and more expensive. A small problem becoming a big one is the most expensive outcome of all.
Your annual budget consistently produces a surplus that could be used to repay a loan.
When a loan is not the right move: If your operating budget is already in the red, your delinquency rate is above 25%, or a large portion of homeowners have not paid dues in months, you need to address those issues before taking on new debt.
5. Types of Loans Available to Associations
There are four main types of loans designed for HOAs and condo associations. Each one fits a different situation.
Term Loan
The most common type. You borrow a set amount and pay it back in fixed monthly payments over a set number of years, usually 5, 7, or 10 years. Good for any defined project where you know the cost upfront.
Example: A $400,000 loan at 7.25% over 7 years equals about $6,075 per month, which works out to roughly $51 per unit per month in a 120-unit community.
Line of Credit
Like a credit card for your association. You get access to a set amount and only pay interest on what you actually use. Good for communities that may need to pull funds over time for multiple smaller projects.
Bridge Loan
A short-term loan, typically 1 to 3 years, used to cover an immediate need while you figure out a longer-term plan. Good for emergencies when you need to act fast and can refinance later.
Special Assessment Loan
The lender advances the full amount of a special assessment right away. Homeowners repay it over time through a monthly surcharge added to their regular dues. This turns a painful lump sum into a manageable monthly payment for everyone.
6. Bank vs. Private Lender: Which Is Right for You?
When associations look for a loan, they generally have two options: a traditional bank or credit union, or a private lender. Here is how they compare in plain terms.
Traditional Bank or Credit Union
Usually takes 60 to 120 days to approve a loan
Requires at least 2 to 3 years of audited financial statements
Often requires that at least 80-90% of units be owner-occupied (not rentals)
Will likely say no if more than 5-10% of units are behind on dues
May require opening a bank account with the lending bank
Generally offers lower interest rates if you qualify
Private Lender
Can often approve a loan in 5 to 20 business days
More flexible about the mix of owners vs. renters in your community
Will consider your situation even if delinquency is a bit higher than a bank would accept
Works with reviewed financials, not just audited ones
Often don’t require opening new bank account as the lender is not a bank.
Interest rates are higher than banks, but the speed and flexibility often make up for it
A good example of a private lender that works specifically with HOAs and condo associations is Samtov Finance, which can often get you a loan offer within a few days of receiving your documents.
Why Speed Can Save You More Than a Lower Rate
It sounds counterintuitive, but paying a slightly higher interest rate to a private lender can actually save your association a lot of money. Here is why.
Imagine your parking structure fails inspection and the city is fining you $2,200 every month until you fix it. A bank takes 90 days to approve your loan. That is $6,600 in fines while you wait, plus legal issues and resident frustration on top of that. A private lender might approve you in a few business days and you could start construction immediately.
When a bank makes more sense: If your reserves are above 60% funded, your delinquency rate is below 5%, you have clean financials for 2 or more years, and your project does not need to start for several months, a bank may offer you a better rate and be worth the longer wait.
7. How to Get Ready to Apply
Whether you go with a bank or a private lender, being prepared will make everything faster and smoother. Follow these steps before you reach out to anyone.
Step 1: Check Your Governing Documents
Your CC&Rs and bylaws will tell you how the board is authorized to borrow money on behalf of the community. Read them carefully before you do anything else. They will spell out things like whether a homeowner vote is required, what the borrowing limit is, and what kind of board approval is needed.
If your documents are silent on borrowing authority, do not assume you cannot proceed. Many states have default rules that allow a board to borrow on behalf of the association by passing a formal board resolution. In that case, consult with an HOA attorney in your state before moving forward. A short legal consultation is well worth it to make sure the process is done correctly and the loan cannot be challenged later by homeowners.
Step 2: Pull Together Your Financial Documents
You will need the last 2 years of financial statements: your current budget vs. actual spending, your most recent balance sheet, income statements, a delinquency report showing who is behind on dues, and bank statements for both your operating, reserve accounts and any special assessment accounts.
Step 3: Get Your Reserve Study in Order
If it is more than 10 years old, update it. Lenders use it to verify that the project you want to fund is real and necessary. A current reserve study also protects you if homeowners challenge the decision later.
Step 4: Get at Least 3 Contractor Bids
Get written estimates from at least three contractors for the project. One informal quote from someone's contact will not be enough. Lenders want to see that the cost is realistic and competitive. They don’t have to be signed by the board just recently updated and comprehensive, estimating the full scope of work needed.
Step 5: Get a Term Sheet from a lender
Get a preliminary term sheet from a lender, indicating the terms of a potential loan that fits your association’s unique needs. Make sure it includes the term, interest rate (fixed/float), fees, prepayment options, and main covenants. This gives you something to show your fellow board members when discussing a potential loan.
Step 6: Know Your Repayment Plan
Before you talk to a lender, know how you plan to repay the loan. Will it come from your operating surplus? Will you add a small monthly surcharge to homeowner dues? What does that monthly number look like per unit? Being able to answer this shows the lender you have thought it through.
Step 7: Communicate with Homeowners Early
Even if you do not need a homeowner vote, telling residents what is happening and why will save you headaches later. A simple one-page summary explaining the problem, the loan amount, and the monthly cost per unit goes a long way toward keeping the community on your side.
Ready to move fast? For a private lender like Samtov Finance, having these six items ready can get you to approval fast: 2 years of financials, a delinquency report, a reserve study, contractor bids, and your governing documents showing borrowing authority.
8. Real Examples with Real Numbers
Example 1: Roof Replacement, 300-Unit Condo, Bank Loan
A 300-unit condo association in South Florida needed a full roof replacement across multiple buildings. The project cost came in at $2,000,000. The association was in strong financial shape: reserves were well funded, delinquency was under 3%, and they had three years of clean audited financials. They were a textbook bank loan candidate.
They applied to a community bank and were approved in about 90 days. Here is what the loan looked like:
Loan amount: $2,000,000
Interest rate: 7.5%
Term: 7 years
Monthly payment: $30,644
Cost per unit per month: $102.15
For a unit owner, that is about $102 added to their monthly dues for 7 years. At the end of the term the loan is paid off, the roof is done, and the association owns it free and clear. No special assessment, no lump sum, no financial hardship on residents.
Example 2: Concrete Restoration, 250-Unit Condo, Private Lender
A 250-unit condo association needed urgent concrete restoration on their parking garage and building facade. The structural engineer had flagged it as a safety issue that could not wait. The problem was their financials were not bank-ready. They had no reserve fund and an 11% delinquency rate.
They went directly to a private lender. The private lender looked at the full picture, confirmed the association had enough assessment income to service the debt, and approved the loan. Here is what it looked like:
Loan amount: $1,000,000
Interest rate: 12%
Term: 5 years
Monthly payment: $22,244
Cost per unit per month: $88.98
Yes, the rate is higher than a bank loan. But the association had to act fast, and the cost of doing nothing, including potential liability for a structural failure, would have been far greater. The private lender made the project possible when no one else would.
Example 3: Pavement Repair, 19-Unit HOA, Private Lender
A small 19-unit HOA needed to repave their private roads and shared driveways. The pavement had deteriorated to the point where it was becoming a liability issue. They needed $200,000 and they needed to move quickly.
With only 19 units, no bank was interested. Small associations are rarely worth the underwriting effort for a traditional lender. A private lender stepped in and got them funded. Here is what the loan looked like:
Loan amount: $200,000
Interest rate: 12%
Term: 5 years
Monthly payment: $4,449
Cost per unit per month: $234.16
At $234 per month per unit, this is the most expensive example in this guide. But consider the alternative: asking each of the 19 homeowners to write a check for over $10,500 to cover their share of a special assessment. For most people, that is not realistic. The loan made the repair possible and spread the cost into a monthly payment that homeowners could actually budget for.
9. Common Questions Answered
Can the board take out a loan without asking every homeowner to vote?
Usually yes, up to a certain amount. Most governing documents give the board the authority to borrow money on behalf of the association without a full membership vote, as long as the amount stays within a defined limit. Check your CC&Rs and always confirm with your legal counsel.
What interest rates should we expect?
Banks typically charge interest rates in the mid to high single digits for association loans. Private lenders generally charge rates in the low to mid teens. The exact rate from either type of lender will depend on your loan amount, the term, and your association's financial health. The tradeoff is straightforward: banks offer lower rates but are harder to qualify for, while private lenders charge more but can approve situations that banks will not touch.
Will the loan show up on homeowners' credit reports?
No. The loan belongs to the association as a legal entity, not to individual homeowners. No one's personal credit is affected. Homeowner's credit could be impacted is if they stop paying their dues and the association places a lien on their unit, which is the same outcome as any unpaid assessment.
What does the lender use as collateral?
For most association loans, the lender's security is the association's right to collect dues from homeowners. Individual homeowners do not put up their homes as collateral.
How long does it take to get approved?
Banks and credit unions typically take 60 to 120 days. Private lenders, like Samtov Finance, who specialize in association loans can often give you a formal term sheet in 24 hours and full approval in a few business days, assuming your documents are in order.
We have some homeowners behind on dues. Can we still get a loan?
It depends on how many. Banks get uncomfortable once delinquency rises above 10%. Private lenders will look at the full picture, including whether you are actively trying to collect and whether the situation is improving. A few units in foreclosure proceedings do not necessarily disqualify you.
Do they check individual board members' credit?
No. Lenders evaluate the financial health of the association itself, not the personal credit of anyone on the board. There is no personal credit check involved in a standard association loan.
The Bottom Line
If your association is facing a big repair, a strained reserve fund, or a project that homeowners cannot realistically afford to pay for all at once, a loan is not a last resort. It is often the most practical and community-friendly solution available.
The key is knowing your numbers before you pick up the phone. Understand your reserve fund percentage, know what your monthly surplus looks like, and have your documents ready. Then decide whether a bank or a private lender like Samtov Finance is the right fit for your timeline and situation.
The right loan, handled properly, protects your property values, keeps your homeowners from facing an unaffordable lump sum, and lets your board do its job.
This article is for informational purposes only and is not legal, financial, or investment advice. Please consult your association attorney and financial advisor before making any borrowing decisions.