Subject Area: Debt Financing
Responsible Office: Financial Services/Budget Office
Sponsor: Chief Financial Officer
Originally Issued: November 1986
Revised: May 1999, August 2000, October 2006, January 2008, January 2010
Refer Questions To: Casey Campbell, 773-702-3695
Purpose: To establish procedures for obtaining internal loans from University cash balances for certain purchases of equipment, construction, and major renovations projects.
The University from time to time provides resources for internal financing of equipment, construction, and major renovation projects.
- Reason for Internal Borrowing - Internal lending will be considered when the availability of current resources are not sufficient for a) purchase of equipment, b) construction, and c) major renovation projects.
- Limitations on the University's Ability to Make Internal Loans - The University requires a certain level of cash balances to be available at all times to cover its day-to-day operating expenses. Therefore, internal loans are subject to the availability of University cash balances.
- Payment of Interest - All borrowers of University cash, whether an administrative, academic, or auxiliary unit, will be expected to pay interest on cash borrowed. (Note: Internal interest cannot be charged to federal grants and contracts or to accounts that recharge their cost to federal grants and contracts. Therefore, in these cases, internal interest should be charged to a different account which is not directly charged or recharged to the Federal Government).
- Internal Interest Subaccount - Interest charges for internal loans must be charged to subaccount 9010.
- The Interest Rate - Interest will be charged monthly at the previous month’s weighted average rate of the University outstanding external debt.
- Payment of Principal - Loan repayment terms on loans less than $100,000 are limited to five years. Loan repayment terms on loans greater than $100,000 and less than $500,000 are limited to ten years. Loan repayment terms on loans $500,000 or greater must be specifically approved by the Chief Financial Officer. Loans may be prepaid, in whole or in part, at any time without penalty.
Review Process and Criteria for Obtaining an Internal Loan - Each unit seeking an internal loan must submit the following information on the "Request for Internal Loan" application form which is available from the Budget Office or Financial Services:
- Description of the internal borrowing need, including the amount requested.
- Time frame over which the borrowed funds will be expended.
- Time frame over which the borrower proposes to repay the loan.
- Justification for the borrowing request.
- Other financing options available and why an internal loan is favored over other options.
- The source for repaying the loan (Note: Internal interest cannot be charged to federal grants and contracts or to accounts that recharge their cost to federal grants and contracts.)
- Approval - The borrower's request is initially reviewed by the Budget Office and then forwarded to the Chief Financial Officer for approval.
- Implementation - Once an internal loan has been approved, Financial Services will establish a separate account in the Plant Fund for expenses associated with the project. The borrower will be allowed to spend up to the amount approved for the internal loan. Internal interest will be computed and charged on the net cash overdraft in the project account as of month end. The borrower will be expected to pay the monthly interest charge plus a portion of the principal due each month as determined by the payment schedule set as part of the authorized loan.
Exceptions to this policy are discouraged and can only be approved by the Associate Vice President for Finance.