Everything You Need to Know About Condominium Association Renovation Loan
Loan consulting is the first step towards a positive loan decision
Applying for a loan can seem complicated or cause uncertainty – whether financial assistance is needed by an individual, a company, or a housing association. The first thing to consider when contemplating a loan application is finding a trustworthy financial partner.
Loan consulting may seem like a formal and complex process by nature, but in reality, the purpose of this service is quite the opposite. For example, a housing association may want to improve the energy efficiency of an apartment building and enhance its appearance visually, or they might be interested in a larger, comprehensive renovation of the entire building and the association's green areas. Regardless of which extreme or something in between, the bank's interest is always the same: to think openly together, find the best solution together, and agree on next steps.
What is the difference between consulting and loan application?
The difference between consulting and loan application is that consulting does not yet require knowledge of specific amounts, such as how much loan to apply for or how much to accumulate in a renovation fund before coming in for consulting.
Consulting is based on the desire to help shape an idea more concretely, and if desired, one can proceed from there to loan application. The better the preliminary work in discussing wishes, the better the bank will understand the association's needs and thus provide better advice. Before contacting the bank with a wish for loan consulting, it is advisable to think through important points: – whether all association members collectively support the wish to apply for a loan; – to what extent is the desire to renovate the apartment building; – whether to apply for a loan, for example, together with KredEx support; – when would be the best time to carry out renovation work.
You can contact the bank for consulting at any time and there are no fixed rules for it. However, sufficient time should be left between consulting, loan application, and construction work. There is no set time period. Time must be allowed because applying for a renovation loan requires prior association meeting, necessary technical consultations with the local government and construction companies, and preparation of technical information needed for the loan application. SEB also offers video consulting, which allows, for example, a housing association to discuss initial questions even with the entire association's board present, without coming to the bank in person.
How does a housing association renovation loan affect apartment building residents?
The renovation loan is issued by the bank as a positive decision to the applying housing association. When applying for a loan, the housing association's ability to pay is assessed, including incoming bills, the size of the collected renovation fund payment per 1 m², financial plan, annual financial report, etc. These documents represent the housing association's transparency and organization, on the basis of which the entire loan analysis is conducted.
Although the analysis of the entire loan application process focuses on the housing association as an organization, the actual content of the association is formed by its members. For example, one important factor is whether current bills are paid on time or with delay. Those association members who have not paid bills correctly can be excluded from the payment ability analysis, which in turn increases the payment burden on the association for the entire building. Therefore, the payment of monthly bills by each apartment building resident affects the entire loan analysis and the size of monthly loan payments.
Payment burden is calculated based on the cost per m² of the renovation fund collected by the housing association. Generally, renovation fund collection is common in associations, but the per m² price or the size of the renovation fund may not be sufficient for a loan application. During consulting, when discussing payment ability, it is always one of the bank's recommendations that the collected fund payment per 1 m² should be at least 15% of the loan payment amount with a safety buffer. This is important because the revenue from renovation fund payments must cover not only loan repayment but also other expenses of the association, while at the same time its size must be bearable for residents themselves.
For example, one can cite a situation where an association (total floor area of apartments 6000 m²) applies for a loan for the complete renovation of the building in the amount of €700,000 (expected own financing €50,000) and has previously collected a renovation fund of €0.5 per m² by general meeting decision. However, loan analysis shows that the minimum recommended renovation fund collection per 1 m² to service the loan amount should be €0.8 or even higher. However, such a change would mean an increase in the monthly utility bill for a resident of a 50 m² apartment of approximately €15 in the form of renovation fund payment.
Financing renovation work with a loan does add a payment burden on one hand, but on the other hand, it provides an opportunity to improve quality of life and modernize the appearance and value of the property. Large renovation works are often motivated by the goal of better thermal insulation and reducing heating costs. Renovation works directly help implement changes that the association wishes to undertake and make necessary improvements. The impact of renovation work can also be calculated using examples on the SEB website in the energy savings calculator.
Housing association renovation loan: seven steps towards a positive loan decision from SEB bank
The basis for applying for a renovation loan is the will of the housing association residents and discussed readiness regarding the need for work. Next, the project cost needs to be calculated, most often the bank is then involved as a financier. To get a positive response in as short a time as possible, it is important to be properly prepared. These seven steps will help the housing association go through the renovation loan journey:
1. Map out your wishes. On one hand, the renovation wish may come from residents' desire to improve quality of life, but on the other hand also from a direct need, for example the apartment building's façade is worn out or communication systems need modernization. 2. Involve housing association members. The wish of the housing association residents and identified needs are the basis of the renovation process. Without the support of the majority, such decisions cannot be made in an association. 3. Estimate costs. It is important to understand which works are most necessary and what their cost might be. Carrying out renovations may require consultation, expertise, and/or design costs in addition to construction costs. 4. Contact the bank. To obtain financing for planned construction works, one should contact the bank where you can get necessary advice. Personal consulting helps, for example, the board member leading the renovation project better understand the details of the loan application process and thereby explain the process more easily to the association members. SEB bank also offers video consulting, which means that the association's representative can discuss ideas with the bank conveniently from home instead of having to visit a bank branch. 5. Submit the housing association loan application. The application can be submitted electronically through the website or online banking and all necessary documents must be attached, which have been identified during consulting and listed on the website. The loan application can also be submitted conveniently at the bank's branch. 6. Loan analysis. When processing the application, the association's risks and the sustainability of loan repayment are assessed. The analysis reviews the loan's purpose, amount, budget, and collateral. An important role is also played by whether financing is supported by, for example, Kredex. It is difficult to determine the length of the loan processing period as it is influenced by the size of the requested loan amount, loan period, and possible special conditions. 7. Positive decision and loan disbursement. After receiving confirmation from the loan committee, the client manager always communicates the positive decision together with the main conditions. The decision always emphasizes the housing association's expected contribution and loan amount, interest and contract fee, and technical data. The decision always expects that all association members as participants familiarize themselves with the conditions, and then the manager can explain the meaning of the conditions if necessary.
In conclusion
A housing association renovation loan is a complex and combined solution. On one hand, the loan enables property improvement and thereby increases quality of life. On the other hand, the loan involves many participants and the loan application and associated details must be coordinated in the association. The obligation is long-term, it requires agreement of the housing association and certainly trust. SEB bank wants to be a good cooperation partner from the first consultation, helping the housing association understand needs, make sense of the journey, and achieve goals, assessing and calculating risks.
ABC of renovation loan application: • Familiarize yourself with the terms on the website • Register for (video)consulting • Submit loan application
More information: www.seb.ee
Article author: Toomas Palts, SEB business clients department head
