Strata – buildings that are divided into lots with different owners, such as apartment complexes and commercial office buildings – pose a challenge when it comes to financing unexpected costs like repairs or upgrades. The Owners Corporation is supposed to have a fund for these things, called a Capital Works fund, but this can take time to build up and sometimes there’s too little in there.
Another option is to ask all of the lot owners to contribute, but that’s likely to annoy most and some may not be able to, resulting in an unfair situation if some pay while others haven’t. But there is a third, surprisingly quick option. You could apply for a strata loan. What’s that? This short guide will share everything that you need to know.
What are strata loans?
Strata loans are fast, unsecured loans that are given to the Owners Corporation of a strata building. They actually don’t have to only be used for repairs and upgrades. They can also be used to add new things to the building or to cover insurance premiums that need to be paid.
Strata lending is unsecured because it is seen as being a fairly low-risk type of lending. Part of the reason it’s seen this way is because these are very simple, no-frills type loans. They can be fixed-rate or variable, but that’s really all there is to them – the agreed principle and an interest rate. It’s being borrowed by a group of people, reducing the chance of fraud, and those people have to live there. If they borrow the money and spend it unwisely without fixing up the place, they have to suffer the consequences. Hence, most don’t.
Strata loans are also not secured against anyone’s property.
What are the benefits of strata loans?
The first and most obvious benefit is that it gives Owners Corporations the funding they need for the work that needs to be done. It also tends to get this money into the correct bank account very quickly, as lenders are aware that most of the time when an Owners Corporation applies for one of these loans it is for urgent repairs.
The second benefit is that instead of having to pay upfront for all the necessary work, Owners Corporations can spread that cost over as many as ten years, assuming it’s a residential loan. Commercial strata loans tend to have a shorter term of around five years.
Eligibility for strata loans
While each lender has slightly different requirements, strata loans are fairly straightforward. They can be lent to any Owners Corporation that supplies the correct documents, which usually include a list of strata members, financial statements, ID from the loan signatories, and quotes for the work that the loan will fund.
Summary
Strata loans are simple loans of money for the repair and upgrade of strata buildings. They are agreed by the building’s Owners Corporation and would usually only be taken out when urgent repairs are needed or after a vote at a General Meeting of the Corporation. They don’t require any collateral; only documents are usually needed. They can last anywhere from a few months to ten years.