How To Finance Your Religious Organization

Religious organizations are considered a different type of commercial real estate and are governed by different laws and regulations. There are specialty lenders who work with these organizations and can provide loans with good interest rates and flexible terms. Most religious groups seek financing for construction, expansion, improvements, and real estate.

Some different types of church financing include a fixed-rate loan, bad credit or prior bankruptcy or foreclosure loan, light documentation, smaller loan to value percentages, crowd-funded down payment, and no prepayment penalties. Faith-based groups need to consider a variety of options when searching for the best loan.

Finding a Church Loan

Most lenders will want to analyze church revenue and the reason a religious organization is looking for funding. Sometimes up to three years of documents are required and a parsonage or school might be looked at for collateral. If the money is only needed for emergency repairs, a lender might offer a cash-out loan or a short term loan.

Although not all financial institutions offer loans for religious groups, there are many lenders who specialize in financing church projects. The leadership of the group will usually need to work with the lenders and provide documentation to show the organization will be able to repay the loan.

Private Lending

In some situations, religious organizations can fund their own needs through private donations and special offerings by the congregation. An organization may be able to call upon members to provide a specific amount of money to be used for construction or a well-off member might sign over property or land that is paid in full. This type of financing is usually handled “in-house” and offers the least amount of regulations and paperwork.

Church Loan and Hard Money

Churches that have paid off their mortgage may be able to refinance or pull equity from the property they already own. This is a great option for a religious group that is already well established and may need extra money for expansion or repairs.

Organizations that are in need of church financing usually need to find a commercial or small business type loan. There are several different types of loans and lenders available to meet the needs of religious groups. Many loans offered to religious organizations will not need to be personally guaranteed. This means that a person who is part of the leadership will not need to use his or her own personal assets to guarantee the loan. When a personal guarantee is needed, it could be dropped after a percentage of the loan is paid off.

If a loan for a church is in jeopardy of foreclosure, many lenders will be more lenient than in other situations. Some lenders may offer an interest-only payment option for a certain period of time. Penalties could be waived, and past due amounts could be attached and extended on the loan.

When a religious organization is facing financial difficulties or can’t qualify for a traditional church loan, hard money or a private money loan might be an option. Although the interest rates for these types of loans are usually more than a traditional loan, it can be a great alternative for the short term. These loans can be closed quickly, and the money will be available for financial assistance.

A hard money loan can be used if the organization has faced foreclosure in the past or in the near future, poor credit, or a decrease in income. Usually, the loan is extended with the church paying points for a certain interest rate and it needs to be paid off or refinance within a few years. This is usually the last option for faith-based groups since the repayment amounts are larger than a more traditional church loan.

Overall, there are many options for financing religious organizations. In some instances, a faith organization can use federal money to support non-religious activities and outreach based social services. Federal money that is in the form of vouchers like childcare certificates or school programs is allowed. Most of the time specialty lenders are needed to provide loans for church projects. Repayment options are usually more lenient and fit the needs of religious groups.

Author's Bio: 

Katie earned a BA in English from WWU and loves to write. She also adores hiking in redwood forests and photography. She feels happiest around a campfire surrounded by friends and family.