Strata Loans Processing

The instructions in this article relate to the processing of Strata Loans, which is completed in Process Bank Statements. The icon may be located on your StrataMax Desktop or found using the StrataMax Search.

Overview

When a Building / Plan considers getting approval to borrow funds from a financial institution in the form of a loan, consideration of how this should be represented in the Financial Statements needs to be determined so the loan is setup correctly from the beginning.

• What are the funds for?
  • Usually for large expenses when there is insufficient cash in the operating or investment account.
• Are the amounts just related to one fund?
  • Normally when large expenses are required to be paid it will be related to the Sinking / Capital Works / Maintenance/ Reserve Fund.
• How will the repayments of the loan be funded?
  • Income for a building is generated with the approval of levies (normal or special) for payment by Owners.  Consideration of what period and frequency as well as which fund (as above) these will be applied to will need to be determined.
• Should the income / expenses be shown in the already setup fund, or would it be better presented to Owners on the Financial Statements with a separate Income and Expenditure Statement?  
  • This can be achieved by setting up a new Trading Fund which can be named as required or relevant to the reason for the loan.  Levies can also be named to be relevant and setup in Levy Invoice Codes.

Once the above is determined, the accounts in StrataMax can be prepared for the initial and ongoing transactions and levies.

Setup Accounts

The general ledger (Account Maintenance) accounts required for a loan are:

Trading Fund (if using)

Setup of a separate income and expenditure statement (Trading Fund setup) will allow all income and expenses related to the loan to be on a separate page of the Financial Statements.

Bank Reconciliation | Strata Loan Transactions

The following transactions are likely to occur on the bank reconciliation:

• the initial amount of the approved loan will be reflected as a receipt into the bank account.
• a loan approval fee may be automatically withdrawn.
• on-going periodic repayment amounts will be direct debited from the bank account;
  • for the repayment of the principal and
  • for the interest expense
• other transactions based on the Loan Agreement Schedule.

Initial Receipt of Loan Funds

Allocate to a liability account (after '0599 Liabilities' in the account code range in the Master Chart) on the balance sheet, named ‘Loan’ or something similar. It is a good idea to have a different account code if there is more than one loan taken out by the building / plan.

What to do on the Bank Reconciliation

1. From Process Bank Statements, click the blue Process Bank Reconciliation icon under the 'Actions' column to open the Bank Reconciliation screen for that building.  
2. Highlight the funds received and open the transaction to check the Type is ‘Deposit’ and enter the ‘Account’ as the Loan Liability account as created above, the Details can be adjusted to give clear notes on the transaction if required.
3. When all items have been allocated click Auto Process.

These are the transactions that will be recorded in the accounts:

Loan Fees

1. From Process Bank Statements, click the blue Process Bank Reconciliation icon, under the 'Actions' column to open the Bank Reconciliation screen for that building.  
2. Allocate the associated ‘Loan Fees’ to the correct expense account. Highlight the transaction in the Bank Reconciliation to open the transaction, change the ‘Account’ code to the appropriate expense code. i.e. Bank Fees / Loan Fees / etc. 
3. When all items have been allocated click Auto Process.

Example Loan Fee Transaction

These are the transactions that will be recorded in the accounts:

Expenditure of Loans Funds

Invoices from Suppliers will be coded against the appropriate fund and may be based on approved budget items. When the payment is made to the Supplier, the funds will be spent from the Cash at Bank, as this is where the loan funds will have been deposited to.

Creditor Invoice

EFT / BPay / Cheque Payment

Periodic Repayments | Principal and Interest

As the repayments of both principal and interest are separate recurring entries, these can be posted to the correct accounts. These will be split to reduce the loan liability account and increase the interest expense. A Legend could be setup to automatically allocate the transactions.

What to do on the Bank Reconciliation

1. From Process Bank Statements, click the blue Process Bank Reconciliation icon under the 'Actions' column to open the Bank Reconciliation screen for that building;

• Interest: Highlight the transaction in Bank Reconciliation and open the transaction by clicking it, enter the ‘Account’ code as the appropriate ‘interest expense’ account.
• Principal: Highlight the transaction Bank Reconciliation and open the transaction by clicking it, enter the ‘Account’ code to the Loan liability account (as created above).

Example Transactions for interest and principal

Example of the Bank Statement Report

NOTE:  If there is only one total repayment on the Bank Reconciliation, use Add Allocation to correctly split the amounts for principal and interest.

Hybrid Loan

A hybrid loan offers the Owners the option to make a full upfront payment, classified as a Self Funded Owner (SFO), eliminating strata loan interest and ensuring no further costs, or alternatively, to distribute their financial obligations across the duration of a loan.

The lender for the hybrid loan will often provide information for the required accounts to be used, the loan details, including fees and interest and the lots for loan repayments and SFO lots for loan credits.  Statements may also be provided each month to align the repayments, interest amounts and expected balances.

StrataMax can be used to setup to manage the financial transactions for a hybrid loan, by taking into consideration the below factors:

• Account Maintenance - may require accounts added for:
  • Loan Liability
  • Loan Income 
  • Loan Interest expense
• New Levy Setup (Levy Invoice Code Setup) will be required for:
  • Loan Levy (all owners) - 
  • Loan Levy Credit (SFO's only) - setup based on the provided schedule using a custom schedule for selected lots.
• Levy Management (using the setup levy invoice codes):
  • Loan Levy -  add in levy periods, based on the provided schedule, for the period of the loan, to invoice all owners.
  • Loan Levy Credit - add in credit levy periods, based on the provided schedule, for the period of the loan, for the selected SFO lots, using a custom schedule.
• Receipt allocation (Receipt Entry / Configuration) for the building should be reviewed, due to the use of the above credit levy, receipts should be reviewed for correct allocation.  If particular under and over-payment settings should be excluded and also the rationalise of credit balances when levies are generated.
• Receipt processing should be applied to balance loan levy and loan levy credit balances to nil on SFO Lots when being processed on the Bank Reconciliation.
• Month End Rollover (if set to automatic) should exclude the building if it has a hybrid loan with Loan Levy Credits, so the below can be managed before rollover.
• Review the Account Dissection before month-end to confirm that any SFO Lots with outstanding payments have been correctly allocated for both the Loan Levy and Loan Levy Credit. These amounts should net to $0.00, and Debtor Adjustment may be required to prevent interest from being applied to the Loan Levy
• Statements will reflect the anticipated balances, and Journal Preparation may be used to transact any items not recorded within the reporting period, such as loan interest expense.

For training on the above hybrid loan management process, please contact our Training Team. If you prefer to have this completed on your behalf, reach out to our Full Service Team and supply all the relevant details. Standard rates apply