Loans are considered contributions to the extent of the outstanding balance of the loan. Loans from banks, however, are not considered contributions if made in the ordinary course of business. Endorsements and guarantees of bank loans do count as contributions.
Unlike other loans, a loan or line of credit from a bank is not considered a contribution if the conditions set forth are satisfied. If a loan fails to meet any of these conditions, it is considered a prohibited contribution from the lending institution.
A committee may obtain a loan or 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.
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 loan may be secured using assets of the committee, such as real estate, personal property, negotiable instruments and stocks. 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 endorsements
A loan may also be secured using guarantors or endorsers, who agree to repay the loan should the committee default. As previously stated, an endorsement or guarantee of a bank loan is considered a contribution by the endorser or guarantor to the extent the loan remains outstanding, and is therefore subject to the law’s prohibitions and limits on contributions.
Pledge of future receipts
A committee may pledge its future receipts as security for the loan; the amount of the loan must 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 may include, for example, anticipated contributions or interest income. The loan agreement must require the committee to deposit the pledged funds into a separate account established for this purpose. If the account is established at a depository other than the lending institution, the committee must assign the account’s funds to the lender and notify the depository of the assignment.
Other methods of assuring repayment
The Commission may, on a case-by-case basis, approve other methods of assuring repayment. A committee may wish to request an advisory opinion from the Commission before entering into an alternative repayment agreement.
Endorsements and guarantees of bank loans
An endorsement or guarantee of a bank loan is a contribution. The amount guaranteed counts against the endorser’s or the guarantor’s limit only to the extent that the loan remains outstanding.
Repayments on the loan proportionally reduce the amount charged against each endorser's (or guarantor's) contribution limit.
If a loan agreement does not stipulate the amount for which each endorser or guarantor is liable, then the contribution amount of each endorser or guarantor is determined by dividing the total amount of the loan by the number of endorsers or guarantors.
Continuously itemize all loans received and made by the committee until they are repaid. All repayments made or received on a loan must also be itemized. Procedures for reporting loans and loan repayments are explained.
Reporting loans received by the committee
Schedule A: Initial receipt of loan
Itemize the receipt of a loan, regardless of amount, on a separate Schedule A for Line 13 (“Loans Received”).
Schedule B: Interest and principal payments
Report the interest paid on a loan as an operating expenditure, itemizing the payment on a Schedule B for Line 21(b) (“Operating Expenditures”) once interest payments to the payee aggregate over $200 in a calendar year.
Payments to reduce the principal must be itemized, regardless of amount, on a separate Schedule B for Line 26 (“Loan Repayments Made”).
Schedule C: Continuous reporting
In addition, report both the original loan and payments made to repay the loan on Schedule C each reporting period until the loan is repaid. Instructions for Schedule C explain what information must be disclosed. Use separate Schedule C forms to itemize loans received and loans made.
The Schedule C balance of the total amount owed on loans is entered on Line 10 of the Summary Page (“Debts and Obligations Owed by the Committee”) or, if the committee has other debts, the balance is carried over to Schedule D.
Schedule C-1: Additional information for bank loans
A committee that obtains a loan from a bank must also file Schedule C-1 with the first report due after a new loan or line of credit has been established. A new Schedule C-1 must also be filed with the first report due after any terms of the loan or line of credit are restructured.
Additionally, in the case of a committee that has obtained a line of credit, a new Schedule C-1 must be filed with the next report whenever the committee draws on the line of credit.
Line-by-line instructions for filling out the schedule are posted here for Schedule C-1. The committee treasurer or designated assistant treasurer must sign the schedule on Line G and attach a copy of the loan agreement. Electronic filers must submit a signed Schedule C-1 and a copy of the loan agreement in addition to filing the schedules electronically. The loan agreement may be filed on paper, or as a digitized document on disk, CD or email, by the close of business on the filing date
Finally, an authorized representative of the lending institution must sign the statement on Line I.
Schedule D: Debt and obligations excluding loans
A committee that fails to make interest payments on a loan must report the accumulated unpaid interest as a debt on Schedule D.
Reporting loans made by the committee
Schedule B: Outgoing loan
When making a loan to another organization, itemize the disbursement, regardless of amount, on a Schedule B for Line 27 (“Loans made”). used to itemze loans received and loans made. (Filers should label the forms accordingly.)
The Schedule C balance of the total outstanding loans owed to a committee is entered on Line 9 of the Summary Page (“Debts and obligations owed to the committee”) unless other types of debts are owed to the committee. In that case, the Schedule C total is carried over to Schedule D.