Internal Loans

Scope

This policy provides guidelines for the University’s internal loan program.

Reason for Policy

To provide guidelines for the operation of the University’s internal loan program.

Policy Statement

In implementing its capital and operating programs, only UM System Treasurer's Office may grant internal loans for a specific project or use.  The loan types are outlined below:

Pledge Financing – Used as temporary financing during the time pledged donor gifts are uncollected. Pledge loans may be made in an amount less than or equal to uncollected donor pledges on the date of loan approval. Donor pledges are defined as external donors’ promise made in writing to give a distinct amount of money over a set amount of time. If an external donor reneges on their pledge after a loan is granted, the loan grantee would continue to be responsible for payment of remaining principal. The maximum term of these loans will be five years once the initial draw is taken. Consistent with CRR 145.010 Policy for Management and Oversight of Debt and Derivatives, the approval of the Board of Curators will be required to pledge finance individual gift funded capital projects with a total cost of $5,000,000 or more, including the acquisition, construction, renovation or expansion of University facilities, infrastructure or equipment. The approval of the Chancellor/CEO or his or her designee will be required to pledge finance individual gift funded capital projects with a total cost of less than $5,000,000, including the acquisition, construction, renovation or expansion of University facilities, infrastructure or equipment.

Bridge Financing – Used as temporary financing during the draw period prior to permanent financing of capital expenditures. Bridge financing may be made in an amount less than or equal to the total capital expenditure planned to become permanent. The loan will be interest-only during the draw phase which will not exceed five years. Consistent with CRR 145.010 Policy for Management and Oversight of Debt and Derivatives, the approval of the Board of Curators will be required to bridge finance individual capital projects with a total cost of $5,000,000 or more, including the acquisition, construction, renovation or expansion of University facilities, infrastructure or equipment. The approval of the Chancellor/CEO or his or her designee will be required to bridge finance individual capital projects with a total cost of less than $5,000,000, including the acquisition, construction, renovation or expansion of University facilities, infrastructure or equipment.

Capital Expenditures – Used to permanently finance new construction, renovations, equipment, or other purchases with a useful life greater than 10 years. Though not required, capital expenditure loans will often be preceded with pledge financing. Consistent with CRR 145.010 Policy for Management and Oversight of Debt and Derivatives, the approval of the Board of Curators will be required to finance individual capital projects with a total cost of $5,000,000 or more, including the acquisition, construction, renovation or expansion of University facilities, infrastructure or equipment. The approval of the Chancellor/CEO or his or her designee will be required to finance individual capital projects with a total cost of less than $5,000,000, including the acquisition, construction, renovation or expansion of University facilities, infrastructure or equipment. The maximum term of these loans will be the lesser of the estimated useful life of the facility or 40 years after facility opening.

Loan Requests
A completed loan application must be provided to the Office of Treasury by the potential borrower at least two months prior to the Board meeting for which approval has been scheduled.

Approval of Loans
All loan requests must be approved by the Central Bank Committee.  Certain loans may also require approval by the Board of Curators as determined by the Collected Rules and Regulations.

Loan Terms:

• Interest rate – The interest rate for loans will be reviewed at least annually by the Central Bank Committee. Any process or methodology for setting the rate should address the nature of loans expected to be made (e.g. long/short duration, fixed/variable rates) and conditions under which the system expects to issue debt. Additional factors considered in setting the rate include current and historical market rates, the System's weighted average cost of capital, management of interest rate risk, and a spread needed for administration of the Central bank. 
• Minimum Loan Request - $50,000
• Term – The term of the loan cannot exceed the useful life of the asset.
• Repayment – The loan will be repaid with monthly payments of principal and interest.
• Loan Prepayment – Requests for prepayment of all or a portion of an outstanding loan should be directed to the UM System Treasurer’s Office for consideration by the Central Bank Committee.  Approval will be dependent upon the prepayment’s overall impact to the Central Bank.

Distributions for Other Purposes - Distributions form the internal lending program fund in any amount for purposes other than compensation loans will require the approval of the Board of Curators. Any approved distributions will be reported to the Board of Curators and program participants on an annual basis. 

Ongoing Loan Reviews – The Central Bank Committee shall establish procedures for a risk-based, systematic review of outstanding loans on a quarterly basis.  Based on these screening procedures, individual loans may be identified for further analysis. If warranted, this review should include discussions with the business unit fiscal officer responsible for oversight of the loan as well as the campus Chief Financial Officer/Vice Chancellor of Finance and Administration.  To the extent concerns remain after such review and discussions have taken place, the Central Bank Committee may request a formal plan of action from the campus Chief Financial Officer/Vice Chancellor for Finance and Administration.  The UM System Executive Vice President for Finance & Operations and Chief Financial Officer (CFO) should be briefed on any such plan of action and, if material, should direct the campus to present the formal plan of action at the next campus budget meeting held with the President.

Definitions

Loan - Lending funds with the expectation to be paid back the original funds lent (principal) with interest.

Administrative Management Council (AMC) – Administrative Management Council (AMC) is convened by the Vice President for Finance and Chief Financial Officer on a quarterly basis to review, discuss, formulate and approve finance and administrative policies and procedures for the University of Missouri.  Serving on the AMC are the Vice Chancellors for Finance and Administration on the four campuses and the Chief Financial Officer of MU Healthcare.  Advisory to the AMC and in attendance at AMC meetings are the Chief Audit Executive, Assistant Vice President for Budget and Planning, Controller, Director of Facilities Planning & Development, Assistant Vice President for Management Services, Chief Procurement Officer and Treasurer.  The President’s Chief of Staff, Vice President for Human Resources and Vice President for Information Technology are invited to attend and participate.

Central Bank – A centralized management methodology that offers flexibility and stability to campuses in terms of working capital investment returns and capital project finance options.  One of the bank’s objectives is to provide a predictable and equitable cost of capital for project finance, while building balances to boost internal financing capacity.

Central Bank Committee – A University committee charged with the oversight and implementation of all Central Bank policies.  The Committee is chaired by the UM System Treasurer with members appointed by the UM System Chief Financial Officer.  At minimum, members include representatives from the UM System Treasurer’s Office, UM System Controller’s Office and the UM System Office of Planning and Budget.

Accountabilities

AMC:

• Approve Central Bank policies and any subsequent amendments

Central Bank Committee:

• Oversight and administration of Central Bank policies
• Approval of new loan requests
• Approval of requests for prepayment of all or a portion of an outstanding loan
• Review of internal loan interest rate at least annually
• Systematic, risk-based review of outstanding loans on a quarterly basis
• Additional follow-up, as needed, with the business unit fiscal officer and campus chief financial officer for loans identified for further analysis.  If concerns remain, the Committee may request a formal plan of action.

UM System Chief Financial Officer:

• Maintains ultimate responsibility for the governance, oversight and implementation of all matters concerning the Central Bank
• If informed by the Central Bank Committee that there is a material variance between actual and expected performance of a loan, direct the campus to present a formal plan of action at the next campus budget meeting held with the President

UM System Treasurer’s Office:

• Maintain responsibility for structuring and management of all external debt funding
• Chair the Central Bank Committee
• Analyze new loan requests and submit to the Central Bank Committee for approval
• Review requests for loan prepayments and submit to the Central Bank Committee for approval

UM System Controller’s Office:

• Accounting, reporting and financial analysis for internal loans
• Review and identify outstanding loans that require further analysis

Campus Departments:

• Submit loan requests with supporting documentation at least two months prior to the Board meeting for which approval has been scheduled
• Provide monthly repayment of principal and interest over the life of the loan

Additional Details

Forms

Related Information

History

Formerly Accounting Policy Manual 30.35 – Internal Loan (5/07/2007)

Procedure

Request Loan application from Office of Treasury: umtreasury@umsystem.edu