When obtaining a loan for an association, what is typically used as collateral?

When obtaining a loan for a community association, the income stream generated by the association is typically used as collateral. This is because lenders want to ensure that there is a consistent revenue source that can be tapped into for loan repayment. The association's income stream often comes from sources such as assessments and fees collected from homeowners.

This approach gives the lender assurance that the association has the capacity to meet its financial obligations. Lenders evaluate the stability and predictability of the income stream, along with the association's financial history, to determine the level of risk involved in extending credit.

While physical assets can serve as collateral in some situations, they are not typically the primary focus for community associations, where the ongoing cash flow tends to be more relevant. Personal guarantees from members may be required in certain circumstances, but they are more individual commitments rather than a direct form of collateral representing the association as a whole. Property deeds from all owners are also not standard practice as collateral for loans; rather, the association as a collective entity represents the collateral through its financial stability and income generation.