Business Finance and Church Loan Choices for Church Financing

Specialized business finance situations such as those
experienced with church financing will typically require
more advanced commercial mortgage solutions. A church loan
will usually involve several recurring commercial real
estate loan problems.

Church financing is possibly the most difficult commercial
mortgage to arrange. Since churches represent an integral
part of most communities, it is clearly desirable to
improve church loan options if at all possible. In almost
all cases financing will require a very specialized
commercial real estate loan that is typically not widely
available.

Churches are certainly not typical business organizations,
but churches nevertheless have very real and substantial
business loan needs. This article will provide an overview
of four primary church financing difficulties followed by a
discussion of six practical church loan solutions.

Four Major Church Financing and Business Finance
Difficulties -

Before addressing possible solutions for the most common
church loan needs, it is important to discuss the typical
barriers to obtaining appropriate financing. Historically
church financing has been difficult to arrange for several
reasons:

(1) Church Financing Difficulty Number One: Church
properties are unique. Lenders are therefore concerned that
if commercial loan payments are not made in a timely manner
and the lender is required to assume ownership of the
property, it will be very difficult to find a new owner
because of the unique property features.

(2) Church Financing Difficulty Number Two: Lenders
frequently want personal guarantors for church loans, and
this requirement is not appropriate for church financing.
The financial structure of churches simply does not lend
itself to a traditional lender/guarantor approach. But most
lenders are uncomfortable with the potential lack of
guarantors (especially because of the previous observation
about the difficulty of reselling the church property
should it become necessary).

As a result, it is common to find that church financing has
been obtained only after one or more church members have
provided a personal guarantee. 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
business finance 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 Practical Church Loan and Commercial Mortgage Solutions
-

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 Solution Number One: Non-Recourse Loans
(instead of guarantors). As noted above, the willingness to
forego traditional guarantors does require a
non-traditional lender. This particular church financing
solution means that lender decisions will not be based on
personal guarantors in any way.

(2) Church Loan Solution Number Two: Long-term loans (up to
30 years). Church financing will be much more successful
when it is long-term instead of short-term (payments will
be reduced dramatically).

(3) Church Loan Solution Number Three: Low interest rates
(usually a maximum of prime plus 1%). In reality many
churches have been taken advantage of and charged excessive
interest rates because lenders perceived that they did not
have any other realistic options.

With payments based upon a rate in the range of prime plus
1%, church financing 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 Solution Number Four: Minimum church
financing of $500,000. This allows churches to complete
most financing in one step rather than piecemeal over a
period of years.

(5) Church Loan Solution Number Five: High LTV (75% to 90%
is available). This results in a more workable amount of
10% to 25% (rather than 40% to 50% with traditional church
financing) for the down payment or non-financed portion in
refinancing.

(6) Church Loan Solution Number Six: Church financing can
now include new construction, renovation, land acquisition,
purchase and refinancing. Because of more flexible terms,
it is no longer necessary for these vital financing needs
to be postponed indefinitely.

Collectively the six church financing solutions described
above should benefit a large number of churches by allowing
refinancing with much better financial terms and by
facilitating the construction of new churches on an
accelerated timetable. The six business finance solutions
are likely to result in improved financial terms that are
conducive to the long-term financial health of the churches
which take advantage of these suggested church loan
solutions.

Regardless of the practical business finance and commercial
mortgage strategies that have been described above, it is
appropriate to emphasize that arranging appropriate church
financing will almost always be difficult. With a
specialized church loan, the commercial real estate
financing will usually have some unavoidable complexities.
As a result, prudent church borrowers should attempt to
acquire a better understanding of these complex business
loan issues.

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Stephen Bush and AEX Commercial Financing Group provide
business finance - church loan help and AEX Business Loan -
Commercial Real Estate Investment Property Financing
Reports:
http://www.church-loan-financing.org