University of Saskatchewan Policies

Internal Loan

Category:	Operations and General Administration
Responsibility:	Vice-President (Finance & Resources)
Authorization:	Board of Governors
Approval Date:	December 17, 2004
Effective Date:	January 1, 2005
Amendment Date:	January 1, 2010

Purpose:

Organizational units are expected to manage unit expenditures within limits specified by their Approved Operating Budget or as specified by other revenue sources for those activities where a budget has not been approved. There may be circumstances where expenditures for capital in a given year exceed the funds available to the organizational unit. A mechanism is required whereby units can finance capital purchases and still operate within authorized expenditure limits.

The purpose of this policy is to outline the requirements for financing equipment and capital purchases by means of internal loans.

This policy is not intended to apply to internal loans of less than $100,000. This policy does not apply to financing for the on-going costs of operations.

Approval of an internal loan does not provide a guarantee. Responsibility for repayment of the loan and related financing costs will remain with the borrower organizational unit.

Policy:

The University should manage its resources to ensure that financing costs are kept to a minimum. Departments must evaluate the cost and benefits of financing purchases by internal university loans.

The University may provide financing to a college or administrative unit for the purpose of funding capital projects. Qualifying capital projects include, but are not limited to, capital renovation projects and capital equipment purchases including computers. Where the University has authorized an internal loan for these purposes, to enhance accountability, a unique loan fund will be established and the loan proceeds will be transferred to the organizational unit requesting the financing assistance.  The University may also provide financing via a loan arrangement to subsidiary companies with authorization of the Board of Governors.

Amount Eligible for Loans

• The total amount eligible for internal loans at any point in time is 25% of the total amount eligible for investment by the Operating Fund.
• The amount eligible for investment is based on the amount of Operating Fund long term investments recorded in UniFi and the total approved internal loans, taking into consideration loans not yet disbursed at the time of application.
• Should the outstanding internal loans at any point in time exceed the 25% limit, no additional internal loans would be approved.   
• Internal loans may not exceed $10 million for any individual capital project.

Loan Terms

Internal loan terms may not exceed the useful life of the asset.  Generally, the maximum loan terms are:

• Capital projects - twenty (20) years.
• Capital Equipment - three (3) years.

The loan term may vary depending on the useful life of the asset or in special circumstances.

Interest Rate

In order to ensure that organizational units know the applicable financing costs, and to ensure that the university is not exposed to interest rate risk, the rates are intended to compensate for the opportunity cost of lost investment revenue, and are based on the University's cost of financing.

These rates are as follows:

• Loans less than three (3) years in duration - fixed interest rate is set at the time of the loan for the full duration of the loan and is based on Bank Prime Rate plus 1%.
• Loans greater than three (3) years in duration - fixed interest rate based on the 5 year Government of Canada bond interest/coupon rate plus 1%, with rates adjusted every 5 years.

Recognizing that the opportunity cost of lost investment earnings is a real cost to the Operating Fund, interest assessment will not be waived.  However in cases of undue financial hardship, upon application by the borrower, a grant-in-lieu of interest assessment may be approved by the Provost's Committee on Integrated Planning (PCIP).

Procedure Summary:

For any internal loan greater than $100,000, the following procedures will apply:

1. College/Administrative Unit/Centre submits a request for internal financing through Student Accounts and Treasury, Financial Services Department (FSD). Each request must include a loan repayment plan.
2. FSD determines whether the loan application complies with the policy prior to submitting the internal loan application to PCIP. FSD in consultation with the borrowing unit determines the required amount, term, applicable rate and source of funds for repayment and "collateral" source of funding in the event the repayment plan becomes unworkable.
3. PCIP determines whether to approve all loans over $100,000 but less than $500,000.
4. PCIP determines whether to recommend loan agreements of greater than $500,000 to the Board.
5. Board approval is required for loans of $500,000 or greater.
6. If approved, FSD prepares a Memorandum of Understanding with the borrower unit outlining the terms of the loan and implements required financial entries.

FSD ensures that an annual report is provided to the Board summarizing any loan agreements and activity for the period.

Contact: Director, Student Accounts & Treasury, FSD (966-4604)
Web Site: www.usask.ca/fsd

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