| The borrower from the university’s liquidity pool, or current funds, will pay internal loans back with interest over a predetermined period of time through fixed monthly charges to its operating account.
Guidelines for internal loans are as follows:
A. Memorandum of Agreement:
A Memorandum of Agreement is required for all internal loan requests over $1.0 million. This document will include a high level summary of the business plan, the terms of the loan (including loan guarantees), and any other pertinent information relative to the project interim financing. The Memorandum of Agreement will be executed by senior executives of both the Campus and University Administration.
B. Internal Loan Applications:
Initial loan requests should be directed to the Office of the Treasurer and should be approved by the Campus Vice Chancellor/ Vice Provost for Administration and Finance before submission. Formal requests will include the Loan Application and Agreement noted below.
C. Maximum Amount Eligible for Internal Loans:
The total amount of internal loans outstanding at any time shall not exceed 5 - 7% of the average balance of Indiana University’s operating funds investment pool from the trailing twelve months. Any variance from this guideline will require the approval of the VPCFO.
D. Individual Loan Amount:
Individual loans may not exceed $15M for any individual capital project.
E. Maximum Loan Term:
The maximum loan term is 10 years. All interest and principal must be paid back within this timeframe. Loan terms will not exceed the anticipated useful life of the asset.
F. Interest:
Interest charges will begin in the quarter in which the funds are deposited into the appropriate construction or project fund. Interest will be calculated from the initial date of deposit/advance of the loan funds. Subsequent interest will be calculated quarterly based on the weighted average quarterly outstanding loan balance. The interest rate charged on the loan will be based on the Commonfund 12-month short term rate plus 150 basis points (1.5%), applicable to all loans issued after the effective date of this policy. Exceptions will require VPCFO approval.
The interest rate will be subject to annual revision, and may also be adjusted to be consistent with any prospective internal loan policy changes and/or at the discretion of the OVPCFO. Annual rate resetting will occur on or around March 31 of each year, and will be effective for the following fiscal year.
G. Loan Application and Agreement:
All internal loan requests will be submitted on the university approved Internal Loan Application. These requests will be review by the Internal Loan Committee and will include, but are not limited to the following information:
- Detailed project description
- Repayment term
- Repayment source – Fund source(s) for principal repayment, including pro forma cash flow or budget projections for the term of the loan
- Billing/Deposit account number
- Name of Dean/ Department Chair accepting terms of the loan
- Name of appropriate Fiscal Office and Account Manager
- Preliminary approval of request by Campus Vice Chancellor for Administration and Finance
H. Early Repayment:
Internal loans may be prepaid at any time without penalty.
Status
An internal loan status report will be provided to the Board of Trustees annually as part of the fiscal year-end closing report.
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