Church Financing Options - Church Loan Difficulties

A church loan is likely to be the most difficult type of business loan to complete successfully. Since churches are an integral part of local community infrastructures, it is important to explore all church financing options. A typical church loan will require strategies involving unique commercial real estate financing that is not easy to locate.

A typical church is certainly different from a typical business organization. Nevertheless churches have complex commercial financing needs. This article includes an overview of four major church loan difficulties with a summary of six practical church loan financing approaches.

Four Key Church Loan Problems

Before addressing possible solutions for the most common church loan needs, it is important to discuss the typical barriers to obtaining church loans. Historically church financing has been difficult to arrange for several reasons:

(1) Church Financing Difficulty Number One: Church properties are unique. Lenders are therefore concerned that if commercial loan payments are not made in a timely manner and the lender is required to assume ownership of the property, it will be very difficult to find a new owner because of the unique property features.

(2) 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.

It is not unusual to have a church loan that has been finalized only after several church members have given a private guarantee for church loan financing. The normal request for private guarantors acts as a major difficulty because there might not be individuals who have the necessary net worth to provide a private guarantee for large church loan financing requirements and because church members might prefer not to act in this capacity even if they are financially capable of doing so.

(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 Financing Barrier Number Four: Renovation, construction and land acquisition are frequently more difficult to get approved than church purchases or refinancing. Due to this, repairs are often postponed and new churches commonly take several years to complete.

Six Prudent Church Loan Financing Approaches

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 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.

(2) 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).

(3) Church Loan Strategy Number Three: Lower interest rates. Churches have frequently been taken advantage of and have paid higher interest rates than necessary.

With payments limited to prime plus 1% or less, church financing payments will be noticeably reduced. Together with a longer-term church loan, the overall payment decrease will improve church cash flow.

(4) Church Loan Financing Approach Number Four: Church loan financing minimum of $500,000. This larger loan size permits a church to finalize church financing in one step.

(5) Church Financing Solution Number Five: High LTV (75% to 85% is available). This results in a more workable amount of 15% to 25% (rather than 40% to 50% with a traditional church loan) for the down payment or non-financed portion in refinancing.

(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.

Copyright 2005-2007 AEX Commercial Financing Group, LLC. All Rights Reserved.

Article Source: http://www.rightarticle.com

About Steve Bush: Stephen provides candid business loan - credit card processing advice. Sign up for free Commercial Mortgage reports from AEX Commercial Financing
Click here to get your own unique version of this article.

Please Rate this Article

5 out of 54 out of 53 out of 52 out of 51 out of 5 

Not yet Rated