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Church Financing

Feb 5th, 2007 by Todd

The vast majority of all churches constructed in the United States require some form of financing. At a minimum, there is an interim construction loan. In most cases it includes a permanent mortgage. Some Christians are adverse to a church taking out a mortgage loan for construction. John Whitehead has addressed this issue from a biblical perspective in his paper scriptural borrowing. Most churches, however, realize that it is not feasible to build without a mortgage and understand that this will enable the church to grow and ultimately be in a position where they can pay off the debt sooner.  This is because they have more people who are attending and giving to the ministry. The amount of a mortgage loan is usually a maximum of three times the church’s annual budget. Many times local banks who have not loaned to churches have the misconception that it is a “high risk” loan. They cannot evaluate the loan on the same basis as a traditional loan; either it’s a percentage of loan-to-value or as part of a business plan or cash-flow analysis. In reality, churches are the lowest risk loan out there. There are fewer defaults on church mortgage loans than any other kind of mortgage loan. Several lenders, in recognition of this fact, specialize in lending to churches and will often give rates that are better than the average commercial mortgage loan.
Churches are typically taking out some form of a commercial loan, not a residential mortgage. As a result the period of the loan is shorter than the 30 years that the average homeowner uses (typically anywhere from 10 - 20 years). Often the loan has a variable rate after 5 years, and some require a balloon payment at the end of ten. The payment terms and the options in the loan vary from company to company. Remembering that you are a desirable loan to certain banks should prevent you from accepting requirements or conditions that your local bank may put on you. It is well to “shop” the loan and talk with different lenders, both local and those specializing in church loans [LINK], before finalizing any arrangements.
One item worth noting, related to finances, is the impact on the annual budget when a mortgage payment is added to the monthly expenses. From a financial projection standpoint, it can be very intimidating for a church to look at this, particularly in conjunction with a capital stewardship campaign [LINK].

Posted in Classroom, Growth Planning

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