A candidate or his or her campaign committee may obtain a loan, including a line of credit, from a bank, provided that the loan:
- Bears the bank’s usual and customary interest rate for the category of loan involved,
- Is evidenced by a written instrument,
- Is subject to a due date or amortization schedule, and
- Is made on a basis which assures repayment.
Bank loans are not considered contributions from the bank if they comply with FEC regulations on bank loans. If a loan fails to meet any of these conditions, then a prohibited contribution from the lending institution results.
When a candidate obtains a bank loan for use in connection with his or her campaign, the loan is considered to be from the bank and not from the candidate's personal funds. The candidate is acting as an agent of the campaign.
Methods of assuring repayment
A loan is made on a basis which assures repayment if it is obtained using one or more of the following authorized methods of securing the loan:
- Traditional methods
- Pledge of future receipts
- Other methods of assuring repayment
Traditional methods of repayment
A committee may use one of the following traditional methods of securing the loan, or a combination of the two:
A loan may be secured using assets of the candidate or the committee, such as real estate, personal property, cash on deposit, certificates of deposit and stocks. The fair market value of the assets must, on the date of the loan, equal or exceed the amount of the loan and any senior liens. The committee must ensure that the bank has established a “perfected security interest” in the collateral (that is, has taken steps to legally protect its interest in the collateral in the event that the committee defaults on the loan).
Note that if a candidate obtains a loan using assets jointly owned with his or her spouse, the amount of the loan may not be greater than the candidate’s share of the property (usually one half); otherwise, a contribution from the spouse results.
A candidate obtains a $5,000 bank loan for his campaign using, as collateral, property valued at $20,000 held jointly (in equal shares) with his spouse. Both co-sign the loan. Because the candidate’s interest in the property is $10,000, which exceeds the amount of the loan, his spouse has not made a contribution by cosigning it.
Guarantees or endorsements
An endorsement or guarantee of a bank loan is considered a contribution by the endorser or guarantor and is thus subject to the law’s prohibitions and limits on contributions.
Pledging future receipts
If the committee pledges its future receipts as security for the loan, then the amount loaned by the bank may not exceed a reasonable estimate of anticipated receipts, based on documentation provided by the candidate or committee (such as cash flow charts or fundraising plans). Future receipts might include, for example, anticipated contributions or interest income.
The committee must also set up a separate account for the receipt of funds pledged for the repayment of the loan. The account may be established with either the lending institution or a different depository. If the account is established at a depository other than the lending institution, then the committee must execute an assignment of the account’s funds to the lending institution and notify the depository of the assignment. The loan agreement must require the committee to deposit the pledged funds into the account established for this purpose.
Other methods of assuring repayment
The Commission may, on a case-by-case basis, approve methods of assuring repayment other than those described on this page. A committee should request an advisory opinion from the Commission before entering into a loan agreement that relies on alternative sources of repayment.