University Secretariat and Legal Counsel

University Secretariat and Legal Counsel

site header

Procedure for Internal Loans

Contact Officer:  Associate Director, Financial Reporting - financial.reporting@queensu.ca

Purpose

The purpose of this procedure is to set out the application, approval, and administration of internal loans.

Procedure

Applying for an Internal Loan

 
Who How
Organizational Unit Step 1

Complete application for Internal Loan (see Appendix A), attach completed business case and forward to Financial Services.

 

Organizational units contemplating internal loan financing of a future capital project must formally apply for an internal loan in the early planning stages of the project to enable strategic prioritization of the debt request.

 

Interest rates are based on the indicative cost of borrowing, obtained through a quote from a financial institution for debt of the same term. Interest rate indicative quotes can be obtained from Financial Services and are valid for a period of 60 days. If the Internal Loan is financed with external debt, the rate applicable to the related external debt shall apply, including related costs.

 

The capital projects approval process may take longer than 60 days. In such cases units may need to obtain a preliminary interest rate quote for planning purposes. An updated interest rate quote can then be obtained to finalize the Business Case being sent for approval.

 

Procedure 

Approval of an Internal Loan

Who How

Vice-Principal's

Operation Committee

(managed through

the Office of the Controller)

Step 1

Receive and review application for Internal Loan.

 

Step 2 - VPOC Approval

If request for Internal Loan is approved - forward loan approval document to Financial Services for safekeeping until the Internal Loan receives appropriate Board approval.

 

If request for Internal Loan is denied - inform organizational unit that application for Internal Loan has been denied.

 

Step 3 - Capital Assets and Finance Committee Approval

As per the Debt Management policy the Capital Assets and Finance Committee must ultimately approve all new internal loans

 

Procedure

Issuing an Internal Loan

Internal loans shall be issued for the amount requested as soon as the Internal Loan is approved by the Board of Trustees.

Who How
Office of the Controller        Step 1

Obtain a copy of the Board approval of the Internal Loan and confirm final terms with Associate Vice-Principal Finance.

 

Step 2

Prepare amortization schedule for the loan.

 

Step 3

Prepare Standard Loan Agreement for signature by Controller and the Head of the organizational unit responsible for the principal and interest payments. See Appendix B for Standard Loan Agreement. Append an amortization schedule for the loan to the agreement.

 

Step 4

Record Internal Loan in PeopleSoft using appropriate accounts.

 

Step 5

Provide copy of Internal Loan documentation to Budget Office.

 

Procedure

Administer Internal Loan

Who How
Office of the Controller          In the first month of each fiscal year record annual principal and interest repayment for internal loan based on amortization schedule.

 

Upon completion of a Capital Project if actual costs are lower than the internal loan issued, the amortization schedule will be updated to reflect the actual principal required for the project and an updated loan agreement will be prepared and executed.

 

If during construction a need for additional funds is identified, details of the request together with updated information on planned repayments should be sent to Financial Services at financial.reporting@queensu.ca as soon as is practicable. Requests to increase internal loans require approval from the Capital Assets & Finance Committee. Requests to increase the budget of a capital project may require approval of the Board of Trustees.

Procedure

Early Repayment of Internal Loan

Early repayments are permitted once a year, in April. Repayments must be a minimum of $500,000.

Prepayments will be applied to reduce the overall term of the loan (i.e. annual payments will remain the same). Principal and interest proportions will be rebalanced.

Internal loans financed through external debt are not eligible for early repayment.

Who How
Organizational Unit Step 1

By April 15th, inform Associate Director, Financial Reporting via e-mail of the desire issue a loan prepayment.

 

Email must include:

  1. Information on loan to be repaid;
  2. Amount of repayment;
  3. Chartfield to which prepayment should be charged.
Office of the Controller

Step 1

Verify that repayment criteria are met (amount and timing)

 

Step 2

Process journal entry to record prepayment

 

Step 3

Recast amortization schedule to reflect new balances. Send a copy of the revised amortization schedule to the organizational unit. Maintain a copy of the revised amortization schedule on file.

Procedure

Close out Internal Loan

Who How
Office of the Controller  Once the final payment of an Internal Loan has been processed, an e-mail confirming the final payment has been received will be sent to the Department Head.

 Appendix A - Application for Internal Loan (PDF*, 134 KB) 

 Appendix B - Internal Loan Agreement (PDF*, 35 KB)

Date Approved:  28 April 2014

Approval Authority:  VPOC

Date of Commencement:  28 April 2014

Amendment Dates: N/A

Date for Next Review:  September 2014

*PDF files can be viewed using Adobe Reader