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.
Churches are not typical commercial enterprises but they do have substantial business financing requirements. This article will offer an overview of four key church loan financing difficulties and a listing of six practical church financing strategies.
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 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.
As a result, it is common to find that church loans have been obtained only after one or more church members have provided a personal guarantee for a church loan. The requirement for personal guarantors acts as a severe obstacle because church members might be unwilling to act in this capacity and because there simply might not be individuals who have sufficient net worth to provide a personal guarantee for a large church loan.
(3) Church Financing Difficulty Number Three: When church financing is obtained, there are frequently unacceptable terms such as very small loans, low loan-to-value (LTV) of 50% to 60%, short-term loans and high interest rates. These onerous terms are tantamount to the church loan being declined, and if the terms are accepted, the church is likely to experience continuing financial difficulties due to unrealistic commercial mortgage requirements.
(4) Church Financing Difficulty Number Four: Construction, renovation and land acquisition are even more difficult for churches to finance than purchases or refinancing. As a result, needed repairs are often postponed indefinitely and new churches frequently take many years to become a reality.
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 a rate in the range of prime plus 1%, church loan payments will be reduced dramatically. In combination with longer-term loans, the overall payment reduction will make a significant contribution to church cash flow improvements.
(4) Church Loan Strategy Number Four: Minimum church financing set at $500,000. This encourages churches to finish most business financing in one stage.
(5) Church Loan Strategy Number Five: A Higher LTV (up to 85% is routinely doable). This results in a more reasonable amount of 15% or slightly more (rather than 40% to 50% possibilities with many church loan financing alternatives) for the church to provide.
(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.
Altogether the six church loan financing strategies provided above should produce significant benefits for many churches by allowing refinancing with improved financial terms and by facilitating the new construction needs of churches much more quickly. The six church loan strategies should provide financial terms that will complement the long-term financial condition of pragmatic churches which follow the church loan financing strategies described.
Copyright 2005-2007 AEX Commercial Financing Group, LLC. All Rights Reserved.
Churches are not typical commercial enterprises but they do have substantial business financing requirements. This article will offer an overview of four key church loan financing difficulties and a listing of six practical church financing strategies.
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 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.
As a result, it is common to find that church loans have been obtained only after one or more church members have provided a personal guarantee for a church loan. The requirement for personal guarantors acts as a severe obstacle because church members might be unwilling to act in this capacity and because there simply might not be individuals who have sufficient net worth to provide a personal guarantee for a large church loan.
(3) Church Financing Difficulty Number Three: When church financing is obtained, there are frequently unacceptable terms such as very small loans, low loan-to-value (LTV) of 50% to 60%, short-term loans and high interest rates. These onerous terms are tantamount to the church loan being declined, and if the terms are accepted, the church is likely to experience continuing financial difficulties due to unrealistic commercial mortgage requirements.
(4) Church Financing Difficulty Number Four: Construction, renovation and land acquisition are even more difficult for churches to finance than purchases or refinancing. As a result, needed repairs are often postponed indefinitely and new churches frequently take many years to become a reality.
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 a rate in the range of prime plus 1%, church loan payments will be reduced dramatically. In combination with longer-term loans, the overall payment reduction will make a significant contribution to church cash flow improvements.
(4) Church Loan Strategy Number Four: Minimum church financing set at $500,000. This encourages churches to finish most business financing in one stage.
(5) Church Loan Strategy Number Five: A Higher LTV (up to 85% is routinely doable). This results in a more reasonable amount of 15% or slightly more (rather than 40% to 50% possibilities with many church loan financing alternatives) for the church to provide.
(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.
Altogether the six church loan financing strategies provided above should produce significant benefits for many churches by allowing refinancing with improved financial terms and by facilitating the new construction needs of churches much more quickly. The six church loan strategies should provide financial terms that will complement the long-term financial condition of pragmatic churches which follow the church loan financing strategies described.
Copyright 2005-2007 AEX Commercial Financing Group, LLC. All Rights Reserved.
