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Capital Improvement Projects: How Do We Pay for Them?

08/01/2022 11:47 AM | Bridget Sebern (Administrator)

By Mary Sarah Schweiger, Citywide Banks 

Are you a board member or a manager of an HOA covenant community? If yes, you understand that it can be hard and expensive to keep your community looking its best. One possible solution to consider is obtaining a loan from a local bank to complete the entire capital improvement project all at once. 

Imagine: The buildings are damaged and continue to worsen right before your eyes. Or the community has a sewer system that is slowly but surely falling apart, causing backups. Or, the roads and the parking lots have lived their best lives and require serious repair. Or maybe it is time for a paint refresh. What does an association do? Does the reserve account carry a high enough balance to complete these capital improvement projects, and is there enough left over to facilitate emergency projects? Can the community continue to afford the band-aid solutions that prolong these projects? 

If you are like most HOA's, you have put aside money in your Reserve account regularly; however, the project could cost more than what you have saved. Plus, it would be dangerous to deplete the reserves in the event there is an emergency in the future. Obtaining a loan can get the job done faster, lessen the strain on your reserve account, and allow the Association to pay overtime to lessen the strain on the homeowners.

This is not always the most straightforward task, and it can take some time. Here are some initial questions and answers to help you decide if your Association should seek a loan and how to get started:

  • The first step is to always speak to your local banker. 
    • Each bank is different in its loan requirements. It is good to understand the information you will need to start the process and build that relationship with your banker early in the project.
  • Check your governing documents. 
    • It is essential that the Association's documents allow the Board of Directors to borrow money and pledge future assessments and enforcement rights to the bank to secure the loan. If this is not in your governing documents, you may need to make an amendment. I would seek an opinion from your attorney.
  • Who can approve obtaining a loan?
    • Usually, borrowing money requires a vote of the homeowners. Does that mean 2/3 of the homeowners? Or does that mean a majority of the homeowners present at a special meeting? Can you do this at the annual meeting of the members? Or does it have to be a special meeting with special notice requirements? Or maybe it is as simple as the board of directors' approval. Your governing documents will guide you. 
  • What is the financial health of your Association? 
    • Are you a healthy association with few to no delinquencies? Are you able to meet your operating budget on a monthly basis with the monthly dues you collect? Or are you dipping into your reserves on a regular basis to make ends meet? Could your operating budget afford a loan payment? Or do you need to increase dues or get a special assessment to repay the loan? 
    • Remember, the income of the Association is what the homeowners pay to the Association. What comes in must be able to pay the expenses, i.e., water, electricity, management fee, trash, landscaping, etc., including the transfer to the reserve account. You will want to continue to transfer to the reserve account because it ensures future projects will be supported as needed. The Association will continue to stay healthy above and beyond the loan.

- What is the entire scope of the project?

  • Do you have a clear picture of the whole project and all parties needed to complete the project's scope? What is the project timeline, and what is the estimated cost for completion? Do you have a company you know and trust and want to work alongside? Have they provided a complete bid to do the work? Are they reputable in the community?
  • It is always best practice to obtain 3-4 bids for comparison. Try to compare apples to apples. Ask for references. Get to know these companies. What is their customer service like after the project is completed? 

Ask questions, this will help start the process. Your next course of action will depend on the answers to these questions. Maybe you will need to start with amending the documents and cleaning up delinquencies. Or perhaps you just need to amend the budget and set a special meeting for the homeowners. Feel free to reach out to your local banker with questions or concerns. 

A little about me, I have been a banker at Citywide Banks for the last 15+ years. I take care of the HOA portfolio at Citywide Banks and have experience lending to Associations across Colorado. I have sat on an HOA board for eight years and have experienced a lot (embezzlement, large million-dollar capital improvement projects, insurance claims, etc.)! We are creative at meeting the needs of the community. Citywide Banks prides itself on being a Community Bank, helping communities across Colorado. I am always happy to help and share my experiences and knowledge. Feel free to contact me at

(303) 585-0367

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