Borrowing Money

A co-op's asset management plan will include a long-term financial plan. Some co-ops may have sufficient reserves to implement the plan without assistance, but in many cases the plans will call for new borrowing. That borrowing will allow the co-op to achieve its goals and obligations, whether to refinance existing debt, pay for necessary rehabilitation work, or make arrangements to extend leases or buy land.

Virtually all co-ops in BC were developed under government programs that included a financing component, whether with direct loans from Canada Mortgage and Housing Corporation or indirectly (through loans guaranteed by CMHC). With the end of co-op operating agreements, co-ops needing to borrow must find lenders in the private market and meet the same standards as other commercial borrowers. This represents a big change, and the Program will assist co-ops by facilitating access to a lender, Vancity, that understands co-ops and can offer preferred terms.

A variety of loan arrangements are possible: first mortgages, second mortgages, amortized lines of credit, and interest-only loans (for limited periods) may all be considered. The best instrument will depend on the particular circumstances a co-op is facing. Co-ops on leased land as well as those with freehold interests in their properties are eligible for loans. Vancity will consider amortization periods of up to 25 years.

Loan Applications and Conditions

Potential borrowers approaching a commercial lender need to provide adequate security for any loan, and demonstrate an ability to service any proposed debt.

In addition to meeting commercial standards on measures like loan-to-value limits and debt coverage ratios, borrowers must assemble a formal loan application package. This will include many documents, and preparing a coherent package (especially the long-term financial analysis) can be a challenge for co-ops acting without assistance. Applications generally require:

  • Last three years’ audited financial statements
  • Copy of co-op operating agreement
  • Charges on title
  • Land title and lease agreement
  • Asset Management Plan
  • Basis of and amount to be borrowed
  • Insurance policy
  • Financial analysis (including a 10-year cash flow projection)
  • Rent rolls
  • Property appraisal or assessed valuation
  • Phase 1 Environmental assessment
  • Governance and management overview
  • Additional construction-related information
  • Quantity surveyor estimates
  • Proof of property tax payment
  • Capital replacement reserve aligned with the co-op AMP
  • Financial (and other) covenants attached to loan
  • Commitment to proactive arrears management

Our Program partner, Vancity, offers preferential terms to co-ops participating in the Program.

Other Requirements

If your co-op has an operating agreement (with CMHC, for example), you will require external approval before you can complete a loan. This can take some time. Co-ops should anticipate needing at least three months between accepting an asset management plan and proceeding with borrowing.

Internally, the co-op membership must also approve borrowing plans through a borrowing resolution. Your co-op may already have such a resolution in place that would allow the co-op to borrow what it needs. More commonly a co-op looking to refinance will seek affirmation of an existing resolution or adopt a new resolution. These resolutions are special resolutions, and there are specific legislative requirements surrounding notice and voting. CHF BC recommends a co-op consult with its lawyer on the drafting of a resolution.

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