When your strata building or scheme needs urgent funds for repairs, upgrades and other unexpected costs, what do you do? You could raise special levies, which are sure to irritate most owners. You could wait until your Capital Works Fund grows. Or, for a fast resolution, you could consider strata loans. Here’s what you need to know before exploring your strata finance options.
What is a strata loan?
A strata loan is an unsecured loan provided to an Owners Corporation for proposed works, upgrades, unexpected costs or even insurance premiums. Typically, a strata loan doesn’t have a lot of the features you would find in a normal home loan or personal loan. It’s a simple fixed-rate or variable-rate loan.
Owners Corporations usually need such finance for unexpected costs. Every strata scheme must have a Capital Works Fund, which can be used for infrastructure improvements, and this fund should also include a provision for unexpected costs. The reality, though, is that costs can come out of nowhere, leaving the Owners Corporation unprepared.
That’s where a strata loan comes in, providing you with the finance you need without waiting for the Capital Works Fund to accumulate sufficient capital or raising special levies from owners.
The benefits of strata loans
The obvious benefit of a strata loan is that an Owners Corporation can access the funding required for capital works, even if there’s not enough in their existing capital works fund. Being able to access funds through a loan means that work can commence quickly and without delays. If the loan is for urgent repairs or much-needed improvements, Owners Corporations always want things to move fast rather than slow.
The other benefit is that the upfront cost of a project can be spread over multiple years. This prevents an Owner’s Corporation from having to raise special levies from owners; rather, the loan can be paid back over a set period. Most residential strata loans can be spread across 1-10 years, while commercial strata loans are usually around 5 years.
Who is eligible for strata loans
All Owners Corporations are essentially eligible for strata loans as long as they provide certain documentation and meet other lender requirements. Every lender is different, but strata loans are considered to be relatively basic loans compared to other finance.
The Owners Corporation must provide items such as:
- List of strata members
- Debtors list
- Audited financial statements
- Identification documents for the people signing the loan documents
- Quotes for the proposed work
- Signed acknowledgement of intent to proceed with the works
- Minutes from the AGM outlining details of the works and finance
All lenders have different requirements, but these are the common items that should be provided. Furthermore, it’s quite common for the Owners Corporation to seek funding approval from a lender before bringing the resolution to a General Meeting.
If you’re looking for strata finance to help with infrastructure upgrades or any other expenses, contact More Than Strata today. We can help you find the right funding for your needs and provide any advice you need along the way. Our experts are here to help Owners Corporations achieve their goals.
