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Know What Questions to Ask When Considering a Church Loan

Church Finance Basics
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Voltaire, the famous 17th century writer and philosopher, once said, “Judge a man by his questions rather than his answers.” Nobody has the answers to everything in life, but knowing what questions to ask can often help you find what you’re looking for.

Here are a few questions to keep in mind as you start the loan process:

Ask yourself

Can your church service a loan?
This may be the most important question you can ask, and there are many aspects to consider. Does your church own land or other assets that can be used as collateral? Do the income statements show consistent growth with enough cash flow to service a mortgage payment? If purchasing a building or entering a construction project, does the church have enough cash on hand to put toward the cost? Do your research and know what you can afford before moving forward on a new building project or purchase.

Why does your church need additional space?
A sad truth is there are some pastors who want additional space to fulfill their personal visions of what they want their church to be. However, it’s important to take a step back and see what God’s vision for your church is and how the ministry has naturally grown. Expanding and adding facilities can be exciting, but it’s important not to let yourself get ahead of God’s timeline and to make sure your investment will have a return in terms of growing His Kingdom.

Does your church have stable leadership?
The relationship with your lender is a two-way street. Much like you want to know your lender will still be there in a few years, your lender wants to know the same thing about your church. If you know your church will be undergoing a major transition in leadership within the next couple years, now may not be the right time to start shopping around for loans.

Does your church have equity in its current property?
Equity is the difference between the value of your church’s property and the amount of outstanding debt. As the amount of equity increases, so does the likelihood of qualifying for a loan.

Ask your lender

How much can I afford to borrow?
This question should be a top priority as it could drastically change the scope of your project. If you’re planning on a multi-million dollar facility, hearing that you can only afford to borrow a few hundred thousand dollars will probably cause you to rethink your project. This isn’t always a comfortable question to ask, but it’s imperative to ask it before your plans start writing checks your funds can’t afford.

What is your experience in church loans?
Your lender will be your partner for years—maybe even decades. Having a lender who understands the church lending process can save you headaches, time, and cost in the long run. Dr. Richard Hammar, attorney and CPA specializing in church law and taxes, said in a recent article “Ministers' taxes aren’t complex; they’re unique.” The same can be said about church loans. From the vernacular to the planning, church loans are unlike other commercial loans, and having a lender that understands that can be a great asset.

What happens to the interest paid on my loan?
Sometimes lenders will use their profits to fund political or social causes you may not feel comfortable having your church affiliated with. Many pastors have found comfort in working with a lender that specializes in lending to churches as they understand this concern.

Do you offer permanent financing for churches?
In the world of commercial lending, it’s not uncommon to find loans mislabeled as “fixed” or “permanent.” Sometimes “fixed” rates are carried out as short-term balloon notes that have enticing interest rates and a noteworthy disclaimer: at the end of the term, the remaining amount must be paid as a lump sum. A true permanent loan is a stable arrangement that provides less financial risk to the church.

Since not all pastors are experts in the area of commercial loans, asking yourself and your potential lender these questions can save time and money. To explore financing options with a lender that specializes in church loans, call 866.621.1787 to speak to one of our loan consultants.

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