Types of loans for churches
I recently touched on the types of lenders that are out there lending money to churches, but it’s worth further discussion because of the varied forms that church loans take, especially today.
“Traditional/Conventional”- These terms are most often used to refer to a standard commercial structure which typically has a 3,5, or 7 year term with a 15,20, or 25 year amortization. This is the most common structure used by banks and credit unions to structure a commercial credit and church loans are generally considered commercial. Advantages include fixed payment which helps with budgeting as well as the lowest average closing costs which should be under 2% of the total loan amount, this can vary from state to state and even county to county as things like deed recording tax vary widely.
Bonds- Bonds differ in structure in that they generally have a fixed rate for a longer period, as long as 30 years, great for the church that expects to have a one and done master building plan. The rates are often competitive with bank financing but fees are typically significantly higher, in the 6-8% range, depending on a variety of factors including if the church is willing/able to sell a portion of the bonds to congregants.
Alternative/Hard money- This group includes direct loans from congregants as well as high interest lenders, which can obviously be very different from one to the next. The main advantage is that you can sometimes get these loans even when no other options are available, but you will usually pay for the privilege in the form of higher rate, fees, and often are used for very short term needs while the church works to find a more permanent financing solution.
That’s a basic overview of the general basic types of financing for church buildings. If you have specific questions or want additional detail, you can send me an email by clicking on the button on the top right hand side of the header.
Keep the Faith!
Jeremy, your analysis is spot on. It has been my experience that once the church has to go to a hard money source they place themselves in a more risky position as well. The rates are high already and if they default for any reason some of the hard money lenders use a default rate, which approximates 24%.
Usually if the church has a good plan and patiently works it through they can avoid this source. If they have no choice because of a unique circumstance it is important that they think beyond the short term crisis and line up the financing that will take them out of the hard money loan as quickly as possible.
Hopefuly they only use that type of financing indirectly on an ancillary property and not on the church building, which would put the whole ministry in jeopardy.