A loan to a candidate or political committee is a contribution to the extent that it remains unpaid. Therefore, an unpaid loan, when added to other contributions from the same contributor, must not exceed the contribution limit. Once repaid in full, a loan no longer counts against the contributor’s contribution limit. (However, a loan exceeding the contribution limit is unlawful even if it is repaid in full.) Besides being reported as a contribution, a loan must be continuously reported until it is fully repaid.
While not a contribution, a repayment on a loan that has been made by the SSF must come from a permissible source. For example, although an SSF may loan money without limit to its connected organization, the organization may not use its general treasury funds to repay a loan to an SSF.
Endorsements and guarantees of loans
An endorsement or guarantee of a loan counts as a contribution to the extent of the outstanding balance of the loan. Repayments made on the loan reduce the amount charged against the endorser’s contribution limit. Once the loan is repaid in full, the endorsement or guarantee no longer counts against the endorser’s or guarantor’s contribution limit. If a written loan agreement does not stipulate the portion of the loan for which each endorser or guarantor is liable, then individual contributions are calculated by dividing the amount of the loan by the number of persons who have guaranteed or endorsed it.
Unlike loans received from other sources, loans to SSFs 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 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 that assures repayment.
Methods of assuring repayment
A loan is made on a basis that assures repayment if it is obtained using one or more of the following authorized methods of securing the loan. A committee may use one of the two methods of securing the loan described, or a combination of the two, or may seek the Commission’s approval for an alternative repayment agreement:
- Collateral. 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 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).
- Pledge of future receipts. If the committee (via a written agreement with the lending institution) 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.
Reporting loans received by an SSF
Itemize the receipt of a loan, regardless of amount, on a separate Schedule A for Line 13 (“Loans Received”).
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”).
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.
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 next report if the 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 appear on the back of 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.
Finally, an authorized representative of the lending institution must sign the statement on Line I.
Reporting loans made by an SSF
When making a loan to another organization, itemize the disbursement, regardless of amount, on a Schedule B for Line 27 (“Loans Made”).
Report interest received on a loan on a Schedule A for Line 17 (“Other Federal Receipts”) if the payments aggregate over $200 from the same source during the calendar year.
Itemize all payments received that reduce the principal owed on a separate Schedule A for Line 14 (“Loan Repayments Received”).
The original amount loaned and repayments received on it must be itemized on Schedule C each reporting period until the loan is repaid in full. Schedule C instructions explain what information must be disclosed. (Note that separate Schedule C forms are used to itemize loans received and loans made.)
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.