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Advice and Resources for Private Club Management and Board Members

The Use of Debt in Private Clubs

 Private Club debt should be considered in the context of a long-term capital plan, not just a project.

Private Club debt should be considered in the context of a long-term capital plan, not just a project.

Private Clubs may consider debt as part of long-term capital planning. Learn our recommended RFP process for acquiring bank financing. 

Debt is unforgiving and therefore must be used judiciously in a private club setting.  However, it can be prudently used at times and is available on favorable rates and terms if appropriately acquired.

Debt and the Capital Plan

First and foremost, we believe debt should be considered in the context of a long-term capital plan.  The proceeds should fund a plan, not just a project.  There will be other projects coming along and multiple layers of debt are unduly complicated and expensive. Once the plan is created and the overall need established, we recommend a competitive RFP process that has worked well for us.

Developing an RFP for Private Club Funding

The club should prepare a package of information that includes multiple years of audited financial results and membership census, the long-term capital plan, details of any near-term projects relating to the use of proceeds, the current year budget and interim financial statements, and six months of bank statements.  Get your house is order.  It will make the process go more smoothly.

You will want to develop a list of potential lenders as well as a summary of desired terms.  In general, we recommend seeking the following:

  • A fixed rate loan without a SWAP agreement as SWAP’s can be difficult and expensive to unwind.
  • No prepayment penalties
  • Minimal closing costs, $10-20,000 should be sufficient
  • A negative pledge in lieu of a mortgage – it will save closing, appraisal, legal and other fees that can reach six figures.
  • Limitations on the environmental review (beware - any surprise findings may need to be addressed whether or not you go forward with the loan)
  • A term no longer than 10 years, generally 5-7 years is preferred.  
  • Debt Service Coverage Ratios based on changes in Members’ Equity or Unrestricted Net Assets, not the more typical above-the-line operating income banks use in other settings.

The RFP Process for Private Club Funding

Our preferred process begins with an interview with each of the several potential lenders. We recommend meeting with 5-10 of them.  We describe the club’s plans and desired funding amounts and terms during these meetings.  You’ll get a sense of where lenders are willing to be flexible and where they will draw the line.  It’s educational to see how they differ in their approaches to the same credit.  Some will drop out but those that stay in the hunt will understand the terms up front.  It usually takes multiple rounds of simultaneous discussions and negotiations with the lenders to form the best package of rates and terms.  They have done it all before.  You’ll want someone with relevant experience on your side of the table as well.

In addition to timely payments, banks will typically seek financial covenants including a Debt Service Coverage Ratio and Current Ratio as well as a floor on the number of Full Member Equivalents and the timely delivery of financial information including budgets and audited financial statements.  Be sure you understand the definitions, calculations, and remedies before you make your selection.  They can vary dramatically from one lender to the next.

Any bank providing financing will typically require management of all bank accounts.  You will want to be sure the service offerings meet your needs.  Also, the servicing fees vary widely among banks.  As part of the process, you should ask each finalist to analyze six months of bank statement activity and provide an estimate of monthly or annual fees before the application of any credits.  The total cost of the relationship during the loan term should be calculated for each finalist in making a decision.  The costs generally include interest, closing costs, account servicing fees and may include some unique fees as well.  Lenders get very creative with the packaging of fees and interest!

Establish a Line of Credit

You will likely want to establish a standby line of credit at the same time as entering into the term loan.  Such a revolving loan facility will be much more difficult and costly to acquire at a later date.  These carry their own unique variables, rest periods and rates and must be analyzed separately as part of the overall process.

It is important to remember that everything is negotiable!


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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