CAI-NJ Aug. 2020(w)

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COMPLIANCE... from page 14.

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loan agreement, there are a variety of loan covenants that the association must adhere to. It is important that the board consults with their accountant and attor- ney to review these loan documents and obtain an understanding of the loan covenants. As with the association’s governing documents, it is the board’s fiducia- ry responsibility to remain compliant with the loan covenants set forth in the loan agreement. These cove- nants can relate to several different areas and aspects of the association. Some of the common loan covenants for an association are auditing time- lines, cash balances, and outstanding receivables. As a financial institution, the bank may require the association to provide an annual audit to the bank within a certain number of days or months after year end. The bank may also require the association open a new account with the bank and main- tain an average cash balance for the term of the loan. Having large outstanding receiv- able balances may present an issue in obtaining a loan as this can be a troubling sign for cash flow. To coun- teract this, the bank may request that the association provide a ratio of out- standing assessments to the budgeted assessments on a periodic basis. These are just three examples of com- mon loan covenants for an association but depending on the loan agree- ment these can vary. It is essential that the board reviews a loan agreement and understands these requirements in order to ensure they remain compliant throughout the term of the loan. If the

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