Sometimes it seems like no matter what a condo board does, they just can't seem to get ahead. Whether it's shoddy craftsmanship on your last roof install, a previously unknown mould problem in the attic, or simply rising building costs — sometimes, no matter how well you plan, you aren't financially prepared for what comes around the corner. So what is a board to do? Many boards think the only remedy is an expensive special assessment so residents bear the cost. There is another option, however: the board could get a loan.
Loans come with all sorts of questions, and rightly so, but they allow a board to ensure critical work gets done while spreading the cost over years rather than all at once. Owners may prefer a loan to a special assessment, as cash calls can push owners into debt to pay them, whereas increased condo fees to cover repayment let owners plan for the increase. For a large, one-time expense needed for critical repair, a loan is often best.
Loans are not always the best option. If a board needs funds to perform planned or recurring expenses, its fee structure is likely insufficient to maintain the building, and a loan will only increase the debt burden — pushing fees even higher and potentially putting the corporation in a position where lenders won't extend further credit. Boards should also consider how much the loan will raise condo fees. A good rule of thumb: if the loan would raise fees more than 15%, it's likely better to call a special assessment or fund the project with a combination of options.
The decision to call a special assessment or take out a loan is complex and has lasting ramifications, so it may be best to consult a professional. If your board is having trouble making this important decision, contact Reserve Plus and our knowledgeable team will help you make the best decision for long-term financial stability.