Church Loan Financing Doesn't Have To Be Hard - Read These 6 Tips

Church Loan Financing Doesn’t Have To Be Hard. Read These 6 Tips


When we think about loans, we think about borrowing for homes, cars, or even businesses.

Church loan financing doesn’t come to mind immediately, right?

For this very reason, rarely do churches and religious institutions find the proper guidance.

Resultantly, they fail to acquire a loan or get stuck with one that leaves them in a financial crisis.

In reality, this is very common, and churches often find themselves with buyers remorse.  They close a loan with their local bank, only to later realize that the interest rate was not good, or they were required to personally guarantee the loan.  Worse yet, the Pastor and some church members were required to put their homes up as additional collateral to secure the loan.

All you need to do is have a well-thought-out strategy in mind and knowledge of the ‘right’ sources.

After that, you can smoothly go ahead with the church’s growth plans with sufficient borrowed capital.

Simplifying Church Loan Financing For You

A church needs considerable investment to expand, renovate, or improve its property – much more significant than its everyday operational expenses in most cases.

Naturally, before making such a major financial decision, the church committee or relevant people managing the church’s affairs need to consider some essential aspects.

Wondering what are these considerations, and how do they assist in church loan financing?

church loan financing

Church Loan Financing | 6 Useful Tips

Here are six crucial tips to help your church seamlessly navigate the financing process:

1.   Analyze Why You Need The Loan

Any individual or organization should be very clear why they are looking to get a loan.

Many times, people learn they can cut down on costs or find other short-term financing options. Other times, they realize the whole expenditure is unnecessary. The same is the case with churches.

At the time of financing church building project, the ministry should determine whether the expansion is currently needed, or because of an intended (but unproven) plan to grow and add members.  If it is the latter, the church should be careful about expanding before proving that the expansion is needed.  It may make sense to put the growth plan in place and measure its success over time, prior to spending money on constructing a larger building.  It is better to have multiple services, or even a slightly cramped seating arrangement than it is to have a church mortgage that the church struggles to pay.  

Firstly, unlike attractions or commercial ventures, size and space do not necessarily determine the number of visitors to a church. It has more to do with community engagement and the overall environment of the church.

Moreover, it becomes challenging to maintain a larger than necessary building along with the cost of repaying the debt.

The correct way to analyze prospective growth is through two things: how many existing visitors does a church receive, and how much has the number been going up in recent years.

  • If space is crowded, but attendance is more or less the same over the years, a smaller expansion plan is required. It’s in line with the church’s attendance trends and isn’t a risky option
  • Churches, where attendance is growing steadily, should analyze the amount of space they need to accommodate the growth along with a comfortable margin for future growth.  Also, an analysis of whether it makes sense to expand the current building, or sell the current building and buy a larger building should be reviewed by church leadership.
  • Where attendances are rising at a faster pace, naturally, the church needs room to accommodate and again an analysis between expanding the current building or buying a new and larger building needs to be completed.

These are estimated guidelines to help you in making a balanced assessment. Of course, every church varies in its attendance, membership growth, and future plans.

2.   Get Your Finances in Order

If you’re looking to invest in the growth of your church, your finances should already be at a stable and sustainable level.

Otherwise, along with keeping up existing expenses, it is very easy for the church to start faltering in its loan repayment.

Moreover, most lenders will not be willing to provide loans at favorable terms to churches with a shaky financial situation.

Hence, as a general rule, most lenders want the church’s debt payments to be no more than 30% of the church’s budget. 

In other words, with 70% you should have enough money to meet your day-to-day operation, ministry, and mission expenses.

Moreover, there are many costs that may come up unexpectedly. Therefore, lenders will expect you to have reasonable cash reserves for 3 to 6 months to cover such expenses.

This also means you have a plan in place to repay the debt and makes acquiring church loan financing all the more easier.

3.   Explore Multiple Church Loan Options

It is a good idea to understand what you want out of a loan in terms of interest rate, length of term, guarantors, and other factors.  Discuss with your team what deal breakers are but be flexible on terms that are not as important to you.  Ask your lender what loan options they offer and seek outside council on going over the terms.  Don’t rely solely on your banker to tell you his opinion; remember, the banker does not work for you, he works for the bank. 

Many conventional lenders, such as banks, may not have your church’s best interests at heart. That’s because they do not perceive you any differently from a commercial organization and their fiduciary responsibility is to their employer, not their customer.

Some loans are stringent and have confusing rules and annual testing calculation requirements that the church must meet.  These rules need to be understood by the church and the problems that will happen if the church fails the testing. 

The better option that we recommend is to approach church lenders – those specializing in lending to places of worship that deal with them on a consistent basis.

This can include non-profit lenders, denominational leaders, and church loan brokers.

Not only will specialization lenders often offer you better terms, but they are also more likely to tailor a deal that favors the overall well-being of the church. Hence, it is a good idea to get to know your lender, discuss your needs, and have them put forward a suitable deal.

4.   Negotiating The Best Deal

You now know how important it is to find the right lender, don’t you?

Now, the next step is negotiating terms that your church can comfortably abide by.

This includes everything from the loan amount to church loan rates and length of repayment.

Remember that you’re only borrowing the sum according to what you need. A higher amount might seem lucrative in the short run but will create financial woes for you in the long run.

Furthermore, the optimal loan is going to be for a period of time that makes the payment comfortable but does not extend the payment far beyond what you need. You also must factor in the interest rates and whether the lender is asking for personal guarantees or putting other restrictions on the church.

That’s why more often than not, the best approach is to be conservative in the loan agreement and manage your expenses accordingly.

Therefore, instead of using your estimated expansion expense to measure how much you will borrow, act in reverse. Assess how much you will be able to repay and then collaborate with your team to see what you can do with the loan amount you can afford.

This limits your chances of going over budget and enables you to stay on track. So, in short, opt for a good interest rate with friendly terms!

5.   Prepare to Make Down Payments & Plan Repayments

Down payments will be a major part of any church loan agreement when the loan is being used to purchase a property. The higher the down payment, the lower the principal balance of the loan and the lower the monthly payments.

However, putting up a large sum is not always needed or advantageous for the church. Different loan types have different down payment and loan-to-value requirements (LTV). 

The LTV rates vary according to the purpose of the church loan financing. For instance, these are the common down payment guidelines that the lender will provide you with for some loan types:

  • Raw land purchase with no construction: 40-50% down payment, and LTV should not exceed 50% to 60% of the lesser of the purchase price, or appraised value.
  • Construction project, with or without the purchase of land: Can range from 0% down to 30% down payment depending on the as completed loan to value which should not exceed 75% to 80%.
  • Refinance of existing church debt:  Usually 0% down with the LTV not exceeding 75% to 80% of the appraised value

You can either set aside a portion of your budget for the down payment or conduct a professional capital campaign. This will allow you to bear a lesser monthly loan payment burden and satisfy your lenders requirements.

Consequently, you plan how you want to proceed with repaying church financing and have more of the bargaining power.

6.   Stay Committed Throughout

When acquiring a church loan, motivation and excitement are at their peak. The investment and improvement to the church mean everyone is brimming with confidence too.

However, like all long-term expenses, the initial enjoyment of the investment period soon gets overshadowed by the burdensome repayment and interest.

Therefore, missing out on payments or not having sufficient earnings to run the church is quite possible.

That’s why from the first tip to the fifth, everything needs your total commitment to make this financing church project a success.

The best way to do that is to have all the relevant parties on board, from the congregation and ministers to church elders.

Together, it becomes much easier to bear the burden and support each other along the way.

Make it your priority to repay the loan in time and hold back other major expenses during the process.

Get Church Loan Financing: Transform Your Church!

Yes, there are complications in church financing programs. But now, you have the essential tips that will make acquiring and repaying a church loan simpler and quicker.

All you need to do is stick to the plan, try not to go overboard, and manage your overall expenses.

Finally, pray to the Lord to assist and guide you in doing holy work and help you stay true to your intentions.

So, what are you waiting for?

Go ahead and get the church financing you need.

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