Shopping for a church loan is not the same as hunting for a home mortgage. But just like growing families who need more space, church growth may require a loan to finance a new building or expansion of the existing building. A loan can also be used for general improvements or restructuring a current mortgage.
Make the process easier by developing a strategy using these three steps:
• Choosing the right lender
• Knowing how much to borrow and choosing a loan that fits your needs
• Gathering necessary documentation
Choosing the Right Lender
A church is considered a commercial organization, but while it’s important to work with someone who has experience in commercial loans, you also need a lender who understands this niche area. Like a regular business, churches have basic financial elements such as income and budgets, but because they’re not-for-profit, there are differences.
You may look to your own membership to see if there is a lender interested in serving the church. If that’s not an option, shop around until you find someone who you believe has the church’s best interest at heart.
How Much to Borrow and Types of Loans
Most lenders estimate an average church can borrow up to 3-4 times gross tithes and offerings. In some cases, that amount can be higher. A good lender will provide you with as many options that may fit your circumstance. Talk with your lender about these common types of loans:
• Mortgages: A mortgage can get you a substantial amount of money but may require the church building and/or land as collateral.
• Short-term: A short-term loan may be a good option if you think you’ll be able to pay it back quickly. These often come with variable interest rates, so as the national rate fluctuates, your monthly payment may change.
• Long-term fixed rate: Even though you may pay more in interest, if you want to keep a consistent monthly payment, a long-term fixed-rate loan may be the right choice.
All lenders will require a hefty amount of documentation, so gather everything you need to make the process move quicker and reduce the amount of back and forth.
Be prepared to provide:
• Profit and loss: Provide 3-5 years of data. Highlight any one-time expenses to be added back to net income as it is not a reoccurring debt.
• Net income: A total of your tithes and other offerings and any debts owed.
• Membership numbers: Try to have two years of membership information to show level or growing parishioners’ commitment.
• Property value: A lender wants to know if you own your current building and the land it sits on, how much is still owed and how much equity you may have. Include other church assets, such as a separate building used for another purpose, such as a homeless shelter or thrift store.
• Market appraisal and title search: Proof of the property’s value and that you have a legal title to it.
Find a lender you trust, organize your finances and borrow with discretion. Having a strategy for these steps will help with one of the most important decisions you make on your ministry.