Money to pay for required and recommended capital projects can come from three major sources: from the co-op’s own savings (reserve fund), from grants, and from borrowing.Savings | Grants | Borrowing | Working with Lenders | Approvals / Role of the Regulator
Regular reserve fund contributions help co-ops accumulate the money they need both for major and minor building renewals. An AMP can help your co-op determine what contributions should be, and with more insight into co-op finances than engineers typically can offer.
Co-ops also need to think about developing investment strategies to maximize their returns and help avoid the erosion of their purchasing power. CHF BC does not provide direct investment advice but recommends that co-ops seek out advice from others.
Encasa is a sector-owned investment fund manager. It offers housing providers three mutual funds tailored to their needs, and is a good place to start when considering a co-op’s options.
Ongoing grant programs can be elusive, but government occasionally offers support for capital projects. It may be in the form of grants, conditional loans or a blend of grants and low-interest lending. These can be competitive and may have significant eligibility criteria.
In 2022, in part due to the National Housing Strategy, there are a number of options to explore. Necessary or recommended capital projects shouldn’t be delayed if there isn’t external support, but that support can be very helpful when it is available.
It’s a good idea to always have in mind a project that could be ‘shovel-ready’ at short notice.
Some key programs:
Some co-ops may have sufficient reserves to implement their plans without financial 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 CHF BC AMPs will assist co-ops by facilitating access to lenders.
Vancity is an example of a lender 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.
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.
Co-ops with operating agreements may need to obtain approvals from outside the co-op. This can be true of short-term capital plans, but is a major consideration if a co-op is intending to borrow money. Federally funded co-ops will need approval from Canada Mortgage and Housing Corporation (CMHC) and The Agency for Co-operative Housing. This process will involve the co-op obtaining an appraisal from a professional appraiser, and submitting of a package of other documents which CHF BC can assist with.
This process 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.