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Advice and Resources for Private Club Management and Board Members

The Impact of Long Amortization Schedules of Long-Term Debt at Private Clubs

 Long-term financial debt for private clubs.

Ideally, a Private Club finances its Long-Term Financial Plan through a combination of Initiation Fees; Capital/Debt Assessments; Operating Surpluses and the judicious use of Long-Term Debt.

We always recommend that Clubs fund long term plans and not just a project or two. When your Club is simultaneously investing in preservation of assets and modernization and reinvention spending called for in strategic and/or facility master plans it may be necessary to include debt as a source of capital to fund the entire long term capital plan.  The term of any loan can have a critical impact on the Club and needs to be carefully considered.

Most Private Clubs undertake major upgrades to its facilities every 10-years or so. Because of this reality, Clubs should look at loan terms of not more than 10-years. While using amortization periods of longer than 10-years are tempting because it reduces the required annual payment, interest costs over the life of the loan increase and future capital spending and borrowing capabilities are hampered. The most successful Clubs using debt extinguish it within ten years (5-7 years is best), before the next wave of modernization and reinvention spending begins.

To give an example, a Private Club with $8,000,000 in Operating Revenues seeks to borrow $4,000,000 as part of a Long-Term Financial Plan that includes major upgrades to the club’s dining facilities, wellness complex and aquatics center. This Club finances their on-going capital expenditures of $700,000-$800,000 per year from their capital fund through a combination of Initiation Fees and an on-going capital assessment. The Club plans to re-pay the long-term debt through revenues from their capital fund over and above on-going capital expenditures plus a mortgage assessment that will end once the debt is paid off.

The bank has offered the Club a 10-year term loan at a fixed annual interest rate of 4% with the Club’s option of making mortgage-based principal and interest payments using amortization schedules of either 10-years; 15-years; 20-years; or 25-years. For amortization periods longer than 10-years, it is assumed that the Club will refinance the remaining principal, or initial balloon payment, over the extended period of 10-years at an annual interest rate of 4%. The impact of the different schedules is as follows:

 Amortization Annual Payment Principal Table

While the longer period may reduce the required annual payment, it results in progressively increased borrowing costs and extends the period where the Club’s available capital is encumbered and its borrowing capacity diminished.  The longer repayment period also subjects the Club to refinancing risks such as rate increases, less favorable terms or even the inability to refinance at all. As we like to say, Private Clubs have a nearly insatiable appetite for capital.  Boards must anticipate the capital needs future administrations will face and do their best to limit encumbrances and position those Boards for success.

Considering obtaining debt?  There are many other factors to consider.  We can help assess terms and other factors and how to best utilize debt in your Long-Term Financial Plan.  Click here to read our related blog on the use of debt.

Please let us know how we can help your Club succeed.


Club Board Professionals is a strategic financial consulting and training firm.  The Principals, Dave Duval and Joe Abely, assist clubs achieve excellence in three areas: governance, financial sustainability and membership satisfaction. Contact us for a complimentary initial assessment of your club.

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