Is it fiscally prudent for a coop board to pay via line of credit instead of using its reserve fund?

Asked by jadegung, 11375 Wed Oct 30, 2013

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Jeff Putterm…, Agent, Jackson Heights, NY
Fri Nov 1, 2013
Hello Jade,

This depends on the way the cash flows into the co-op, and could also be a function of the demographic make-up of the board and members. In general, a line of credit would be used in instances where receivables are going to be collected in the reasonably near future, but certain bills are due now. Since such lines are typically "short-term" in nature, any such borrowings would be paid back when the receivable is collected.

Sometimes, however, when there are older people with limited incomes are on the board, they choose to borrow money (usually with a mortgage, not a line of credit) rather than fork out cash upfront. The net effect of this kind of decision is to push the payments onto members who might join in the future.

If you have a certain set of financials you'd like me to read and opine on -- as long as you understand that my opinion is nothing more than that -- please let me know.

Sincerely,

Jeff Putterman
Lic. R. E. Salesperson
Beaudoin Realty Group, Inc.
78-27 37th Ave., Suite 5
(718) 505-9220
(917) 204-7802
0 votes
Anna M Brocco, Agent, Williston Park, NY
Wed Oct 30, 2013
Depends on why the funds are necessary...
0 votes
Belal Mohd, Agent, Rego Park, NY
Wed Oct 30, 2013
Neither, if it is to pay for day to day operations. Co-op should find a way to raise revenue or cut cost to pay for day to day operations. But, if it is for a capital improvement, the board should compare the cost of using the line of credit and using the reserve.
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