Cafeteria Fund—Loans

This Management Bulletin provides clarification regarding the requirements for loans between a school food authority’s (SFA) nonprofit school food service account (cafeteria fund) and other funds (i.e., general fund).

Loans to the Cafeteria Fund from Other Funds

SFAs may need to obtain a loan from other funds, because federal Child Nutrition Programs may operate at a deficit or may not have enough capital to purchase equipment. Such a loan should be treated as a commercial loan and requires a formal written loan agreement between the local educational agency’s administration and food service officials with specific repayment terms before the loan is executed.

Section 200.449 of 2 CFR prohibits SFAs from using cafeteria funds to pay for interest incurred for borrowed capital, or for interest paid on the use of an SFA’s own funds. Thus, interest charged to the cafeteria fund is unallowable.

Further, it is unallowable to charge the cafeteria fund for program costs paid from other funds in prior years unless a loan agreement exists to show that the SFA had been loaning funds to cover costs. For example, if an SFA did not charge the cafeteria fund indirect costs in the previous year because the cafeteria fund had a deficit, the SFA may only recover those costs in the current year if a loan agreement had been previously established before the general fund covered the indirect costs.

Loans from the Cafeteria Fund to Other Funds

SFAs may loan money cafeteria funds to other funds as long as the loan does not endanger the financial integrity of the program, and the balance of the cafeteria fund is not reduced below operational costs for a three month period. In addition, the loan should be treated as a commercial loan and requires a formal written loan agreement between the administration and food service officials with specific repayment terms before the loan is executed.

Interest must be paid to the cafeteria fund per 7 CFR, Section 210.9. The interest rate charged must be equal to the rates charged by commercial sources and not less than the amount of interest the SFA would earn from an interest bearing account.
If the transaction occurs without proper loan documentation, the California Department of Education (CDE) considers this a transfer and the general fund will be required to pay back the loan in full along with any lost interest.

Attributes of Commercial Loan Agreement

Formal loan documents may contain the following information:

• Signed and dated agreement between the school food services department and the administration
• Purpose of the loan
• Principal amount of the loan
• Payment schedule of the loan
  • Length of the loan
  • Frequency of payment (monthly or yearly)
  • Amount of each payment
• Effective date of agreement
• Date of fund transfer
• Interest rate (if applicable)
• Default terms

Contact Information

If you have any questions regarding this subject, please contact the CDE Nutrition Services Division Resource Management Unit by email at snpcafefundquestions@cde.ca.gov.