Securing Financing for Your Church Part 2

in Church Bonds, Church Financing, Church Loans, Funding my church

In the previous article, we discussed the first two of Five Typical Church Financing Issues churches and church leadership can face as they are Securing Financing for Your Church.

3.) Church buildings are a special-purpose facility. Lenders are concerned that if the church defaults on the church loan by failing to make timely payment of principal and interest payments on the church loan, that the lender will be required to foreclose on the church and assume ownership and sell the church facility. This can make it difficult for the lender to recover their original investment, because most church facilities are built to look like a church, and in accordance to that particular congregation’s beliefs and tradition. This can make it difficult for the lender to sell the church facility knowing that they might not be able to get back their investment.

4.) Change in the church’s nonprofit corporate tax status could adversely affect its revenues. Churches operate as a nonprofit religious corporation and as such currently qualify for various exemptions from state and federal taxes. Under current tax law, churches receive contributions from donors that are deductible for those donors for certain federal and state income tax purposes. The elimination of any or all of these income tax exemptions through

legislative action or otherwise, could adversely affect the church’s revenues and its ability to repay the church loan.

5.) Many lenders frequently require personal guarantors for church loans. Personal guarantees of the church’s loan is not always appropriate for church financing since not all churches are governed by one individual. The financial structure of many churches do not lend itself to the typical lender/guarantor financing model. The lack of personal guarantees could cause certain lenders to be unwilling to make a loan to a church. Only after one or more members of a church have provided personal guarantees will some lenders provide funding. In addition, a lender’s requirement of personal guarantees can cause internal friction among certain church members in the event that a member, that has personally guaranteed the loan to the church, should decide to leave the church.

In the next article, we will discuss practical solutions for Securing Financing for Your Church.