How To Shop for a Church Loan
A church loan can be a boon to any organization that wants to expand and do more for the surrounding community. From retrofitting an existing building to creating that large expansion — or even starting over and building a new, state-of-the-art structure — a church loan can enable you to do more and meet the needs of more people in the community in which you’re based.
But getting a church loan isn’t exactly a straightforward process — or is it? There’s a lot of disinformation about the church loan process, but church lending goes back a long time, and many churches in existence today wouldn’t be standing if it weren’t for loans that enabled a building to go up, new equipment that amplifies your message or just to take care of some long-standing issues that need a little attention via some funding.
The good news is that with the right partner, the church loan process is as easy as it is helpful, as long as you’ve done a little bit of preparation up front.
What Is a Church Loan?
For the uninitiated, a church loan is not like securing a personal mortgage for a house or another type of personal property. Instead of looking at personal income and debt, awarding a mortgage based on the individual’s ability to pay, a church loan is more like a loan you would get for a commercial property, such as a business or other type of money-making venture.
But evaluating a commercial loan is different than a personal loan that merely weighs income and debt. A church loan, on the other hand, depends on revenue as a result of the loan. If, for example, a loan enables you to bring in more via tithing, donations and other services, the lender might deem the loan a good fit and choose to authorize it.
So, if you’re looking to purchase a new building or break ground on a new construction, you’ll have to show how the loan will help you increase revenue and the likelihood that you’ll be able to pay back the loan.
It’s All About the Risk
For your lender, it’s all about the risk. Because of the larger sums and an increased number of variables at play, commercial lending is riskier than private lending. Individuals are also more likely to work harder to meet the obligations of a personal loan than a commercial one — after all, it could be your family home at play, and the risk of losing that exceeds the extent to which people will go to satisfy the demands of a commercial loan.
When it comes to church loans, lenders may also be apprehensive about signing off because if things go poorly and the building needs to be sold, it’s simply harder to sell a property of that type compared to traditional commercial properties that can be easily flipped to a similar business.
That means more risk for the lender, which often manifests itself in the requirement of more money up front. That can be difficult for churches that don’t typically operate with large cash reserves or the overhead of a traditional business. Compared to new homes that may offer a $0 down term, commercial loans may require up to 20 to 30 percent down. Fortunately, this doesn’t have to come in the form of cash — equity from other properties owned by the church or some kind of long-term fundraising campaign, also known as a capital campaign, can do the trick.
Where to Go for a Church Loan?
You could go to your local bank and try to negotiate a loan, but odds are they’ll treat you more like a business than a religious institution. That’s kind of a problem since you’re not running a business, you’re running a church. You’ll have income, expenditures and a budget just like regular businesses, but a church’s objective isn’t to make money, it’s to serve the community, and a lender that doesn’t get that could force you into terms that don’t really work for your needs.
What you need is someone that understands what you do and the challenges that you face. These types of lenders understand the intricacies of church lending because they do it day in and day out, which can help you reach more favorable terms for whatever it is that you need.
That said, each church is different, so each church loan is different. However, a church loan specialist won’t treat each new loan like a version of the last loan — the loan has to meet your objectives as well as the objectives of the lender, and if you can reach a middle ground, you’ll have a greater chance at making that church loan work.
The Documentation You’ll Need for a Church Loan
While each lender processes loans slightly differently, there are certain things you’ll need to assemble before you can go out and get that church loan. Essentially, you’re proving out the model and making a case for your expansion or whatever it is that you need to increase your impact and amplify your voice, and that’s done by assembling that proof.
In addition to your weekly attendance, you’ll also need a sense of your membership, which can show a base of committed members as well as potential growth. A few years of these figures are also preferred so that you can depict certain beneficial trends.
A business plan and mission statement are nice, but not always necessary. They may help show the lender how the proposed project will help the church grow and how staffing and volunteers may be used to bring about the vision.
Beyond that, it’s important to show your income, expenses, liabilities and assets, which will give your lender a complete understanding of the church’s financial picture to include what you own and how those assets are currently being leveraged. Other requirements could include appraisals of the property being used for financing, as well as a peek into your day-to-day activities including how big decisions are made.
Find the Right Partner with Griffin Church Loans
Whether you’re a small or large church, Griffin Church Loans can provide the right church loan for your needs. Our church loan specialists are experts in church financing and can design a loan package that works for your church, with a payment that doesn’t break the bank. Apply now or read more about our process.