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.

Four Critical Church Financing Obstacles

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:

(1) Church Loan Obstacle Number One: Churches are usually extremely unique. Because of this, typical commercial lenders are concerned that if commercial mortgage payments are not maintained, it will be difficult to sell the property due to unique property aspects.

(2) Church Loan Financing Barrier Number Two: Business lenders often request private guarantors for church loan financing, and this is not appropriate for church loans. The legal and financial structure of churches simply does not work with a traditional lender/guarantor requirement. Most business lenders will not accept the lack of private guarantors due to the earlier point about challenges involved in reselling the church property.

It is unfortunately very common for church financing to have been secured only after church members have authorized an individual guarantee for church financing. The need for individual guarantors acts as a serious barrier first because church members might be unwilling to do so and second because there might not be individuals who have enough financial resources to provide an individual guarantee for larger church financing needs.

(3) 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.

(4) 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.

Six Pragmatic Church Loan Strategies

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:

(1) Church Loan Strategy Number One: Non-Recourse Church Financing (to replace private guarantors). The ability to not request private guarantors routinely requires a non-traditional commercial lender. With this church loan financing strategy, church financing will be independent of private guarantors.

(2) Church Financing Solution Number Two: Long-term loans (up to 30 years). A church loan will be much more successful when it is long-term instead of short-term (payments will be reduced dramatically).

(3) 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.

(4) Church Financing Solution Number Four: Minimum church loan size of $500,000. This allows churches to complete most financing in one step rather than piecemeal over a period of years.

(5) Church Loan Financing Approach Number Five: Higher LTV (75%-85% is possible). This produces a realistic amount of 15% or so (compared to 50% scenarios with much church financing) for the non-financed portion in refinancing or purchase down payment.

(6) Church Loan Financing Approach Number Six: Church financing options include renovation, land acquisition, new construction, purchase and refinancing. Due to flexible church loan financing, it is not necessary for any of these important church loan activities to be postponed.

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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