Why Would a Condo Corporation Choose to Borrow?

Condominium corporations may face a shortfall in funds due to major capital repairs or unexpected expenses. Levying a special assessment on owners can be undesirable, as it places a greater burden on current owners. Instead, a commercial loan can be a viable alternative. Unlike a special assessment, a commercial loan doesn't need to be paid off when a unit is sold, allowing for fair cost-sharing between owners. This aligns with the Reserve Funding model's goal of spreading out major repair costs over time. With a commercial loan, owners don't have to give up cash or equity upfront, and the interest costs can be spread out and paid over time by multiple owners. This can reduce the immediate financial burden on current owners. Moreover, a loan through the condominium corporation doesn't require consideration of personal credit or borrowing capacity, making it a potentially accessible option for owners facing financial hardship. However, the decision to borrow funds in a condominium corporation is a democratic process, and approval must be obtained from owners through a borrowing bylaw. Condo boards should meet with lenders to explore financing options that minimize impact on condo fees and cater to the unique needs of the community.