Church Financing Problems and Solutions.

Church financing is one of the most complicated commercial mortgages to arrange because a religious organization is so vastly different from the typical business organization. While most commercial lenders and banks shy away from these loans, there are lenders experienced in providing loans to religious facilities.  The following is an outline of the most difficult issues facing church fathers in their search for financing along with an offering of some solutions to those difficulties.

Financing Problem: Church properties are unique. Consequently, lenders are concerned that if their loan payments are not made in a timely manner they will be required to assume ownership of the property.  And they know very well that finding a new owner for such unique properties as church buildings is extremely difficult.  Thus fewer lenders competing for the loan.

Rarely disclosed factoid #1: The first question asked by most commercial lenders when reviewing a church loan inquiry: “Does it have a steeple?”

Rarely disclosed factoid #2: Many commercial lenders reject or demand overly strict conditions on steepled churches because, in the event of having to take back a church in default, they fear the politically incorrect publicity. To see the lenders point of view, one need only picture the eviction from a typical church building with press coverage video, accentuated by the characteristic steeple in the background, 

Solution: Fortunately Lenders Commercial Network is experienced and stand ready to arrange financing on traditional church properties. That having been said, many religious organizations flourish in conventional commercial buildings (and God will still be with the members gathered inside). Because of the likelihood of quicker capital recovery in the event of default, light industrial areas and warehouse buildings are viewed as safer deals by commercial lenders and more and more churches are finding themselves in these light industrial areas. Lenders Commercial Network also lends on traditional commercial properties for non-profits.

Financing Problem: Commercial loans often require individual guarantors.  This requirement is often impossible, even inappropriate, for churches due to their legal and financial structure. Most commercial lenders’ guidelines are simply not compatible with this probable lack of substantive, individual guarantors.  So in addition to the difficulties of reselling a church property in a case of default, they too will have no personal guarantors from whom to recover their potential capital losses.

Solution: Many churches obtain funding because several church members each give a private guarantee for the church’s financing. There may be few individuals in the church who are both devoted and who have the necessary net worth to sign private guarantees for large church financing. Normally, Lenders Commercial Network qualifies churches for non-recourse loans.

Financing Problem: Onerous financing terms. Some lenders view churches as having few financing options available to them, so frequently a church loan is approved with terms that would be unacceptable to another organizations. So they attempt to quote shorter terms, lower LTVs, high debt service ratios (DSCRs), high interest rates; then provide low property valuations.

Solution: Use an ethical, commercial lender, experienced in church financing, like Lenders Commercial Network.  This is a church’s best defense and will mitigate the abusive terms that are often quoted. Although churches usually receive quote terms slightly less attractive than high-quality commercial properties, guaranteed by financially strong borrowers, the terms will be appealing and won't stress a church's budget.

Church Financing Inquiry