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Training on loans, grants, and gifts

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AGENDA

Review trust terms for loans, grants, gifts
Loan process
Evaluating loans
Choosing and training mentors
Evaluating grants
Planning for gifts

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How to use this presentation

The following slides highlight the things a board member needs to know about their family bank.
The specific numbers and requirements can be found in your family bank trust.
Consider this a note-taking document and fill in the bracketed sections with your trust conditions.

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Board responsibilities with loans

Tracking loan status, repayment, and policy
Notice of late payment [when does board send this out]
Meeting with borrowers in default or delinquency [how much does board work with borrowers]
Repossession of assets [when is it allowed, if at all]
Partial repayment [what happens if lender can pay some but not all?]

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You’ll need to know your trust’s requirements for loans

Here are some important rules that may be spelled out in your trust, find them and take notes.

Loans available for [ ex. housing, education, business, investment]
Maximum term limits
Interest rates range [ ex. 2-8% ]
One person can take out [ maximum lifetime loan limit]
Lenders either pick out a mentor or have the board assign them a mentor

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Special loan terms

Loan is in delinquency when [ 1 month non payment ]
Loan default occurs when [3 months no repayment]
Loan forgiveness [when is it allowed, if at all]
Partial repayment [what happens if lender can pay some but not all?]
Forbearance [when can it be offered? for how long?]

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Loan process

Proposal and Application

Family member discusses their idea with the board members. Before the meeting family member fills out an application

Vote

The board discusses the application and the risks and involved and votes to approve the loan or not.

Contract

If approved, the board draws up a contract with the terms for the loan. The borrower signs the contract

Mentor

The borrower either choses a mentor or has one assigned. The board trains the mentor to help the borrower.

Funding

Cash is drawn from cash accounts or loans from the cash value of whole life insurance policies.

Repayment

The borrower begins repayment based on the repayment schedule outlined in the contract

Once the board is ready to start administering loans, family members can fill out an application that details of how much they wish to take out, details of their income and assets and other information. They’ll then request an appointment with the board to propose their loan. Here the board will ask questions and give any recommendations for the borrower about things that will need to be fixed before a contract can be made.

After their meeting with the applicant, the board should vote promptly about whether to approve the loan. The loan approval vote can also be a negotiation. The board can decide to offer less than the full amount, or could offer a higher interest rate if the loan activity is deemed more risky. We’ll cover loan risk in a minute, but you can always lean on your consultant for advice if the board is having a hard time deciding on a particular loan.

Once the board has approved the loan, they’ll contact the borrower to let them know it was approved and that they’ll be sending a contract over. we’ll have a standard contract template and teach you how to make adjustments. Then the borrower can review the terms, reach out to the board to answer questions and eventually sign the contract. The contract will include a repayment schedule, and terms for delinquency/default.

The borrow will need a mentor who can help them to stay on track with their loan repayment.. The board can also assign a mentor should the borrower not have one in mind. That mentor, if new to being a mentor will meet with the board to receive training on their responsibilities

After a mentor has been chosen, the loan funds can be transferred to the borrower

once the funds are received, the borrower will begin repayment as outlined in the contract.

[Show sample application ]

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Evaluating loan applications, things to consider

Thoroughness of the plan to use the money
Practicality and feasibility of the plan
Needs get prioritized over wants
Income and other assets
Current health of bank/available funds
Character of the applicant
Family bank participation

Loan approval looks a little different in the family bank than in private banking. private banks often turn away people with middling credit or put harsh terms on low income borrowers. We want to offer opportunities but we don’t want to give out loans for projects that have no hope of a repayment. What we’re determining in the approval process is how likely this borrower is to be able to repay the loan. We want to see that they have a solid plan to make repayments on the money. We have to think about situations like only having the funds for one loan but having two applications. How we will decide who should get the money? What would be fair? We want to approve plans that seem likely to have a return. It makes sense that someone getting an advanced degree would be able to get a better job and thereby repay the loan. If the plan seems too speculative or based on hoping something will work out, that becomes a risk.

We also want to approve loans for the most important requests. Maybe we choose a home loan over a loan for a vacation.

We want to make sure that the family members are approaching the process with serious thought and intention. If someone has a history of flaking on important matters or makes erratic decisions, they may be a poor candidate

We also want to reward those who are making an effort to engage with the family bank and learn how to use it over those that are totally uninterested until it benefits them

[explain how a board would vote on a sample loan application]

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Activity: Which of these two loans would you approve?

Sam’s loan to buy a franchise of a restaurant chain

Sam has decent credit and assets
He has never managed a restaurant chain before
He wants a loan for 150,000 and estimates that the franchise will bring in $75,000 in profit a year

Abby’s loan to purchase a van for her family

her current car can’t fit all her children
She needs the car to get to her job as a retail team manager
She wants a loan for $30,000 and she could afford $600 a month payments to pay it off in 5 years

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Evaluating grant applications

Refer to your trust details about grants.
A grant needs a detailed application plan with statement of need and budget
Review of other financing options applied for
Availability of money earmarked for grants

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Planning for gifts

Review your trust’s terms for gifts
Gift events: birthdays, weddings, graduations
Budget for gifts and plan ahead
As much as possible, standardize gift amounts

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NEXT STEPS

Read the “Preparing For Your First Board Meeting” document
Schedule your first board meeting
Review these slides and the previous presentation for more detail on the decisions to make in your first meeting
Read the “Sample Family Bank Board Meeting Agenda” and assign someone to make your customized agenda, using the template.