Unlike other loans, loans to nonconnected committees from banks are not considered contributions, provided that they satisfy the conditions set forth. If a loan fails to meet any of these conditions, then a prohibited contribution from the lending institution results.
A nonconnected committee may obtain a loan from a bank (including a line of credit), 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.
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:
A nonconnected 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 committee, such as real estate, personal property, negotiable instruments and stocks, among other things. The fair market value of the assets pledged 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, taken steps to legally protect its interest in the collateral in the event that the committee defaults on the loan).
Guarantees or endorsement
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.
Pledge of 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 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. A committee should request an advisory opinion from the Commission before entering into an alternative repayment agreement.