Credit for clubs: a complex topic. It becomes important for a club, if a special or general project is to be realized, for which the financing is not so easy over the club credit possible. For both small and large associations, loans are a great way to realize this funding. However, the important points around a loan are hard to see at first glance. There are many things to keep in mind: conditions to fulfill, repayment, personal liability and differences in credit options. However, board members, cashiers and treasurers should not be put off. A well-planned loan can be a big step forward for a club. The purpose of this article is to give decision makers a little help in understanding and making the right decisions in the process of obtaining credit for clubs, clubs or similar associations. A credit should always be considered and weighed before a club may be frivolous in a debt that may cause problems later. The first requirement is an exact goal, which should be coordinated with all decision-makers at the club level. Then the question of the exact implementation can follow.
1. Why take a loan at all?
What exactly would a goal be worth borrowing for the club? Anyone who reads more on the Internet on the subject of lending and options, will certainly have an idea in mind, for which his club could use a loan. Maybe he already has a very precise idea of a project or even already made calculations and therefore knows exactly what he is looking for and needs. But anyone who has never taken out a loan for his club, will certainly want to match first, if his project makes sense for a loan application. Examples of frequent borrowing by a club:
- Construction or purchase of a clubhouse or other property
- Renovation or restoration of a club property
- Hosting a big party or event
- Larger purchase for use by the association
Each club has its own needs and goals, which are enshrined in its charter. Sooner or later, however, many associations come to a point where a clubhouse or a special meeting place moves on the agenda. Above a certain size, meetings with members at home become excessive, but at the same time, regular meetings in rented rooms are too expensive. Then it is time to give the club a permanent seat where members and guests can gather, discuss and pursue their club activities. Outwardly, owning a club building also looks much more serious and is often the crucial step from a hobby to a real address. But not only the representation to the outside, but also the identification inside is a good reason for a clubhouse or another form of club property. People tend to identify with places. And identification is the blood of a club, without which the entire statute and club registration are just empty shells.
2. Research legal bases
Associations must follow certain laws, including loans and credits. Before taking out a loan, it is important to familiarize yourself with the relevant laws. A loan application must be discussed and decided in the general meeting. A member decision is the legally permissible basis for accepting a club loan. When taking out loans, members must ensure that this takes place at market conditions. The interest rate may not exceed that customary at regular banks.
3. Requirements for a loan
For a bank to grant credit to clubs, some conditions must be met. That does not distinguish clubs from private persons. From the perspective of the bank, this is understandable: whoever lends money wants to be able to rely on getting it back. In principle, as with loans of a private individual, no bank is required to lend and, accordingly, no association has a right to a loan. In the end, the bank always decides whether to approve a loan or not. Some points are required for lending, others can be helpful. What a club should definitely meet:
- Fulfillment of formal condition and registration as a club.
- Contact person (board, treasurer) is available.
- Association must have income.
- Association must act as a legal entity.
Helpful aspects are beyond:
- The club has already acted as a borrower.
- The association is registered as a non-profit.
- The association has property / assets.
4. What are the conditions for a loan?
First, it must be a registered association. Although most clubs meet this criterion, it pays to respond shortly afterwards. When founding a club, in addition to a statute and a meeting minutes of the inaugural meeting, certain offices must be given and above all have at least seven ordinary (ie registered) members. The number of members must never fall below three. After registering, theoretically a club can continue to exist if, for example, the offices are no longer currently exercised. Creditors should therefore ensure that the club has an active and elected board, a treasurer and the necessary number of members.
Through the board and / or the treasurer, the club can also audition with a clear contact person at the bank. The lender also needs these in order to have direct contact with problems and delays.
The fact that an association acts as a legal entity is obligatory. By law, a club is defined as such, provided that it meets all conditions of club existence demonstrably. Here, too, the following applies: Check once to see if regular member meetings take place and are logged, all offices are filled and a corresponding number of members has been reached.
Interestingly, it is the income. 150 euros in membership fees a year will not be enough to get a loan. Because every lender wants to be sure to get their money back.
A club without regular income will not get a loan. Income can be generated through contributions, sales proceeds, entrance fees, prize money or other sources. Even donations or inheritances can provide the necessary funds in the club treasury. Everything should run through a decent bank account approved for the association, whose extracts can be submitted to the bank on credit application. These excerpts should be able to prove that not by accidental events such as one-time donations or inheritances, the actual income of the association is achieved, but primarily through predictable cash flows.
Supporting a loan application can be factors such as club ownership that serves the bank as collateral. Another important aspect is the non-profit registration. Small clubs can exist without this addition, but have to be liable for a loan with private property and thus take a higher risk for their club. Non-profit associations are liable only with club funds and property.
5. Apply for the loan
Once the decision has been made and all the conditions are met, there is nothing standing in the way of applying for a loan. At least the board and treasurer should agree closely, so as not to bypass anyone. For small clubs, all members should be asked if they agree to borrow.
Many banks offer special loans for clubs. These are often based on self-employed and self-employed forms of lending, since the foundations are similar for the bank: fluctuating income of the borrower and susceptibility to unforeseen events.
It may be worthwhile to talk to various banks and obtain concrete offers for loans. As a rule, loans granted to clubs are installment loans, which therefore have to be repaid with a clear term and over a monthly installment. The exact repayment period differs from the banks and can be tailored to the needs of the association.
The house bank can enable a current account framework, which works like a dispo for the association, thus allowing a short-term overdraft against interest charges of the own account.
5.1 Assigned and non-earmarked loans
Loans are earmarked or not earmarked. Assigned means: use for a particular project or purchase. Such a loan requires that at least 80 percent of the loan be used for this purpose. Banks will check the use and, for example, demand invoices for craftsmen or purchases. For non-earmarked loans, the use of funds may be made at will.
6. Problems with borrowing by association
If an association takes out a loan, it may eventually commit a significant portion of the available financial resources in the long term. If borrowing is foreseen, the decision must be an expression of sound economic management. The credit must be decided by the body designated in the articles of association (often members’ meeting).
If the Executive Board accepts a loan despite the responsibility of the General Assembly and thus lacks the legitimacy of a decision by the General Assembly, Executive Board members may be taken to personal liability. Personal liability also occurs when a loan is based on market-unusual conditions.
Basically, the board is not personally liable for the credit debts of the association, although this is often presented in the media. There must already be facts that justify liability. This is usually the case with unregistered clubs. Even if the Management Board provides a guarantee to the lender, the personal liability of the members of the Executive Board is given (eg by a guarantee).
6.1 Loans for clubs by the club members
If a club has not been established for some time and is not in possession of financial guarantees, it will usually not get a club loan. The solution may be individual club members who act as borrowers. If necessary, several members of the association sign the loan application. In principle, such conditions apply as with other loans.
The creditworthiness of members is checked by the bank. The income decides substantially on the creditworthiness. The criteria for awarding a club loan are similar to those for other installment loans . Although these loans are taken out by private individuals, the transfer of the loan amount is made to the association. The installments are transferred to the borrowers, who have to transfer the money to the bank. Liability for the loan to the bank is ultimately up to the borrower or borrowers. If the club is insolvent, the loan repayment must continue until the final repayment. For the club members, borrowing for the club entails some risk.
7. If the club gives out a loan
A club can not only take out a loan, the reverse case is possible. For a loan by a nonprofit association, various cases are conceivable. The charity regulations limit the lending. Basically, just arranging and providing credit will not justify the recognition of charitable status. Lending is permitted as a possible purpose of the association. The lending prohibits itself from funds that are needed in a timely manner. If a loan is granted, the terms are subject to a period of less than two years.
On the other hand, earmarked and unneeded reserves can be used without restrictions even for longer-term loans. By-laws may provide for lending, for example, to certain fellowships, to other charitable bodies (benefit clubs) or to asset management.
Failure of the loan may result in losses that are detrimental to public utility. A customary market interest must be present, so that there is no unauthorized beneficiary of the borrower. This is especially important if the borrower is not charitable.
Loans can be granted to employees of the association, whereby a waiver of interest does not have a harmless effect on the status of charitable status. Here, the interest waiver is to be regarded as an additional reward.
Significant limits on the granting of loans are determined by the Banking Act. Lending on a larger scale would mean commercial banking transactions subject to approval and subject to BaFin supervision. The requirements for an association will hardly meet.
8. Conclusion: finance loans for clubs cheaply with installment credit
When financing acquisitions and projects in associations, offers of simple installment loans are primarily considered. The inclusion of a installment loan, an association can easily initiate. The loan is an uncomplicated financial product, which is reflected in the simple structure with installments and maturity. The interest rates for installment loans are transparent thanks to the statement “effective interest rate per year” and can be compared with each other under the same conditions. Of course, interest rates on installment loans and terms are different from bank to bank.
If the club wants to finance low, several loan offers should be compared. If the club is active for a longer period of time and financially stable, the loan can run directly through the club. The conditions are most likely fulfilled by large clubs. For new and small clubs borrowing directly through the club is often problematic, as banks grant a loan only for collateral. But there are other options for the club such as credit by members or by another club.