Church Financing Solutions for Church Loan Difficulties
by Stephen A. Bush
Church financing is possibly the most difficult commercial mortgage to arrange. Since churches represent an integral part of most communities, it is clearly desirable to improve church loan options if at all possible. In almost all cases church financing will require a very specialized commercial mortgage that is typically not widely available.
Churches are certainly not typical business organizations, but churches nevertheless have very real and substantial business loan needs. This article will provide an overview of four primary church financing difficulties followed by a discussion of six practical church loan solutions.
Prior to describing alternative approaches for typical church loan financing requirements, it is important to discuss the typical church financing obstacles. Church loans have historically been difficult to arrange because of several key issues:
Church Loan Financing Barrier Number One:
Most church properties are unique in comparison to other commercial properties. Due to this, church lenders are likely to be concerned that if business loan payments are not made as agreed, it will be a challenge to find a new owner interested in the unique property attributes.
Church Loan Obstacle Number Two:
Commercial lenders usually require individual guarantors for church financing, and this is inappropriate for a church loan. The financial and legal structure of churches is at odds with a traditional lender/guarantor agreement. Many commercial lenders are not comfortable with the potential lack of individual guarantors because of the difficulty of reselling the church property if negative financial circumstances occur in the future.
As a result, it is common to find that church loans have been obtained only after one or more church members have provided a personal guarantee for a church loan. The requirement for personal guarantors acts as a severe obstacle because church members might be unwilling to act in this capacity and because there simply might not be individuals who have sufficient net worth to provide a personal guarantee for a large church loan.
Church Loan Financing Barrier Number Three:
When church loan financing is finalized, there are typically poor terms such as short-term loans, high interest rates, insufficient financing and low loan-to-value (LTV) of 50% to 60%. Such terms are equivalent to the church loan financing being rejected, and if the terms are accepted, the church will probably experience continuing financial obstacles due to the business loan covenants.
Church Loan Obstacle Number Four:
Land acquisition, construction and renovation funding are usually more difficult to obtain than church refinancing and purchases. Because of this, repairs are often postponed and new churches can take years to build.
There are common-sense financing solutions for the church loan issues described above. Here is an overview of church financing that is now available from some non-traditional lenders:
Church Loan Financing Approach Number One:
Non-Recourse Church Loans (replacing individual guarantors). The willingness to eliminate individual guarantors is likely to require a non-traditional church lender. With this church financing approach, church lending will not depend on individual guarantors.
Church Loan Strategy Number Two:
Long-term church loans up to 30 years. Church loan financing will be more successful when it is not short-term (much lower monthly payments are likely).
Church Loan Financing Approach Number Three:
Low interest rates. Many churches have been charged excessive interest rates because they did not realize what other financial options they might have.
With payments based upon prime plus 1% and lower, monthly church loan financing requirements will be reduced. Combined with a long-term church loan, the resulting lower payment will make a significant contribution to improvements in church cash flow.
Church Loan Strategy Number Four:
Minimum church financing set at $500,000. This encourages churches to finish most business financing in one stage.
Church Loan Strategy Number Five:
A Higher LTV (up to 85% is routinely doable). This results in a more reasonable amount of 15% or slightly more (rather than 40% to 50% possibilities with many church loan financing alternatives) for the church to provide.
Church Financing Solution Number Six:
Church loans can now include new construction, renovation, land acquisition, purchase and refinancing. Because of more flexible church loans, it is no longer necessary for these vital church financing needs to be postponed indefinitely.
Collectively the six church financing solutions described above should benefit a large number of churches by allowing refinancing with much better financial terms and by facilitating the construction of new churches on an accelerated timetable. The six church financing solutions are likely to result in improved financial terms that are conducive to the long-term financial health of the churches which take advantage of these suggested church loan solutions.
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Contact Information
Stephen Bush
Chief Executive Officer
Phone: (937) 780-4030
bush@aexllc.com
PO Box 353, Leesburg OH 45135-0353 USA