Temporary Loans from Financial Institutions – a Quick Easy Cash Flow Solution
The accounting firm of C.L. Coonrod & Company has agreed to provide financial guidance & solutions to us related to shortfalls and temporary cash-flow issues on a weekly basis for the next several weeks. Here is the second installment.
Temporary Loans from Financial Institutions: a Quick, easy Cash Flow Solution
Be aware! Your Township’s June tax draw may be late this year, since the Governor changed the taxpayer penalty date from May 10 to July 10.
Spring cash flow has always been a problem for many Townships. Payroll and other spending begins in January, but the first property tax draw may not come until June. What is a Township expected to do in the meantime?
Townships may take temporary loans from financial institutions. The process is relatively simple and the rates are cheap. Most any Indiana bank can handle it for you.
Sometimes these loans are called “tax anticipation warrants” because the bank expects repayment when the Township receives its revenue.
The Township is allowed to borrow up to 80% of its expected revenue for the remainder of the year. Some banks may prefer to base the amount only on the Township’s property tax revenue, not other revenue. Regardless, if you borrow early in the year, that should be enough to tide you over.
The bank will expect the loan to be repaid later in the same year the loan is taken out. In some circumstances, the loan can be extended six months into the next year, but we don’t recommend it. These loans are intended to be short term cash flow tools, not ongoing debts of the Township.
The temporary loan is not like a bond issue. The temporary loan usually requires no bond opinion from a bond lawyer. Those are expensive! However, the township attorney should be consulted. Refer him or her to IC 36-6-6-15.