After an internal loan has been approved, Capital Accounting processes transactions related to internal loan advances and arranges the payment of principal, interest and other debt-related fees. This is generally performed through the Capital Accounting Debt Management System (CADMS). The terms of the loan are documented in either the Form 1 or the Funding Plan/Agreement.
Administration of an Internal Loan
Internal loans, using the Budgeted Interest Rate (BIR) for debt service calculations, are amortized over the useful life of the asset being financed and generally are in alignment with financial reporting lives. A listing of common loan durations can be found in Section 6 (Asset Categories and Lives) of Administrative Guide Policy 5.2.1: Financing of Purchases.
Monthly debt service payments are processed in the first full month after project completion, which is indicated by a signed Temporary Certificate of Occupancy (TCO), a signed permit or receipt of equipment. Capital Accounting assesses the Budgeted Interest Rate (BIR) on internal loan principal outstanding balances and begins assessing debt service to the responsible PTA on a monthly basis, based on the prior month ending loan balance.
Budgeted Interest Rate
The BIR, which is updated annually, is calculated by dividing total debt-related expenditures by the total debt outstanding and available for academic programs. Refer to Budgeted Interest Rate (BIR) for current and historical BIR interest rates.
Taxable Debt Premium
Projects requiring taxable debt are assessed at a higher interest rate if management decisions cause the funding structure to preclude the use of tax-exempt debt. The rate premium is assessed on the outstanding principal balance. Refer to Administrative Guide Policy 5.2.1: Financing of Purchases for additional guidance.
Internal loans are amortized over the useful life of the asset being financed. Debt service on internal loans is based on the Budgeted Interest Rate (BIR). There are two main types of amortization schedules, Level Payments and Fixed Principal, depending on the purpose of the loan. Level payment amortization is the most commonly used; fixed principal amortization is used for service center loans because the straight-line principal amortization mimics asset depreciation, which is an allowable service center expense.
The amortization schedule duration is based on the lesser of the asset category or the actual useful life of the asset. An amortization schedule Excel workbook is available to estimate your payments over the course of the loan. Use the tab that correlates to the type of project you are financing.
If debt requested for a project is reduced after the Form 1 or Funding Agreement has been executed, the borrower may incur a prepayment penalty.
For more information regarding Stanford’s internal loan program, amortization schedules, taxable debt premiums and prepayment penalties, refer to Administrative Guide Policy 5.2.1: Financing of Purchases.
Stanford follows guidelines and practices to remain in compliance with rules relating to tax-exempt bonds. Compliance is required both upon the issuance of the bonds and during the post-issuance phase, which extends through and beyond the life of the bonds.
Federal and state regulations restrict the use of tax-exempt debt to facilities that support teaching, research and the academic mission. The use of tax-exempt facilities is prohibited for religious purposes or for private use, such as conducting research that directly benefits a private sector entity or advertising for a third party on Stanford facilities.
Each year in conjunction with the annual audit process, school or department senior finance officers are required to certify that no private or religious use has taken place in facilities financed with tax-exempt bonds, and that tax-exempt bond proceeds have not been used in situations that would give rise to tax arbitrage.
Consult the Capital Accounting Bond/Tax Compliance Analyst if private or religious use in a tax-exempt financed facility is contemplated. For more information, refer to Compliance for Tax-Exempt Bonds.