How church loans work to finance your ministry's goals

Church leaders have a heart to care for their members and serve those in the surrounding community. They seek to create an inviting place for worship, teaching God’s Word and building relationships. This often involves expanding facilities, renovating existing space or acquiring new property to meet the needs of their congregation and community.

All of this, just like running any entity, requires a financing source. And, if the congregants are not able to raise all the needed funds, financing may be an option. That’s where a church loan can help. With lending tailored to the specific needs and cash flow of the church, a custom-designed loan can help leaders plan their expansion projects, so their facilities can support growth and ministry programs.

Here’s a look at how church loans work and how they can help a church meet its goals.

When for-profit entities need money, they usually present financial information that shows a lender how their forecasted revenue supports eventual repayment in full. Churches don’t have the same kind of money-making agenda, and their objectives are about helping members grow in their faith, along with community service.

Some churches can qualify for a standard business loan, but they often benefit from considering lenders that offer dedicated church loans. After all, church finances operate very differently than those of companies or individuals. Lending that's geared toward churches typically involves expertise, guidance and advice aimed at helping the organization identify an appropriate level of debt that still enables the church to achieve its expansion goals.

Church loans are designed to meet a variety of needs for churches with either an existing loan or for those looking to take out new financing. Here are some ways that a church loan offers flexibility and growth potential to churches.

Often, churches already have a loan but want more favorable terms—such as a lower interest rate or a long-term fixed rate. A simple, long-term fixed rate fully amortizing loan with no balloon payments is typically preferred by churches. This loan type eliminates the church’s interest rate risk while also reducing long-term costs as there are not renewal fees at maturity points during the loan since the loan is fully amortized. A long-term fixed rate loan typically makes budget planning easier for churches and can also provide cost savings, which can be redirected to ministry.

Many existing churches realize that their ministries, from an onsite school to a community food pantry, require bigger facilities, more capacity or additional locations. They may want to reach new members or be located in places where their regular attendees already live, meaning the available stock of for-sale church buildings may not fit their needs. In this case, a church loan for construction can help a church stay within its ideal location and budget. These loans can be structured a few different ways, but, commonly, church loans pay out in stages to fund the costs of construction as each piece is completed and inspected.

Churches typically own their property and often need funds to renovate existing space or expand their current facilities to meet ministry needs. Fast-growing churches often plan their construction projects in phases, recognizing that they need to align their financial resources with their project costs. A church loan can be used to finance both expansion and renovation costs—from updating the sanctuary and classrooms, to converting old spaces into a modern gathering spot. Significant facility renovations to modernize a church property and keep it up-to-date may also necessitate a church loan.

Financial institutions that are unfamiliar with lending to churches may evaluate the church's finances the same way they gauge for-profit entities and secular nonprofits. Churches may not meet typical business loan standards.

Church loans are designed to ensure the finances make sense for both parties while recognizing that the potential for growth—enabled by the borrowed money—can ultimately have a positive impact on the church's future finances. In order to support sustained growth, the church may need funds to expand its worship space due to steadily climbing attendance. A church loan would accommodate the church’s current expansion needs to make space for new attendees.

While there are risks involved with any loan, financial institutions that regularly handle lending to churches are more accustomed to evaluating appropriate risk parameters specific to underwriting a church loan.

A typical business loan application would examine how much money is coming in and going out of the church with less focus on its purpose and outreach work.

For a church loan, lenders will still want to know the church's current finances and debt history. But the assessment will also ask for information that shapes a fuller picture. Lenders may seek details on:

• Church operations to illustrate stewardship and experience of ministry personnel.
• The church’s governance model to demonstrate how the church's ministerial structure supports the core mission and operations of the church.
• Financial reporting—including budget and actual spending to help establish the financial health of the church.
• The church’s real estate assets to ensure they provide an acceptable amount of collateral for the loan.

The church loan assessment process may also dig into the breadth of the church's ministries and whether previous projects reflect financial responsibility. For certain capital projects, churches run pledge campaigns, so a lender may need information on what the congregation has pledged and delivered.

The lender's eligibility evaluation and loan underwriting can take some time. The process is different for every financial institution, but they'll usually get things moving by sending a commitment letter while the church leadership gets any formal approvals that are needed. Once documentation is completely lined up, a closing is set.

Speaking directly with the team at Thrivent Church Financing can help your church work through how to finance a church project or growth opportunity. They offer a no-obligation savings review and work specifically with Christian churches and organizations to customize a solution that matches ministry goals. They know “church”—it’s all they do.

Get started by sending us a message or calling 1-800-984-9425 to connect with their team of loan professionals. Or take a deeper dive into articles and eBooks geared for churches like yours.