A church loan is a form of financing that is available to any religious organization. It can be used to cover the building, maintenance, renovation, and expansion costs. It can also help improve cash flow and cover daily operating costs. Lenders will generally look at the last three years financial statements. The amount of the loan will depend on the amount of undesignated income.
The church loan amount depends on undesignated income:
The loan amount a church can borrow depends on several factors, including the amount of its undesignated income. A good loan consultant will consider all factors before recommending a loan amount. In most cases, the loan amount will not exceed three to three and a half times the undesignated income of the church. However, a church may be eligible for a larger loan amount.
A church’s undesignated income (the money left over in the church’s bank account after all expenses are deducted) is the first consideration in determining the amount of a church loan. The lender will want to know if the monthly payment is within a certain percentage of this net income. While this figure will vary from lender to lender, 42% is a good target to aim for.
Lenders often require a personal guarantee:
When applying for a church loan, be sure to ask about the terms, rates, and personal guarantee requirements. These questions can make the difference between your church’s survival and sinking. Ask about the lender’s policies and willingness to work with your church. A good relationship with a lender can go a long way to helping your organization thrive.
While most loan underwriters require personal guarantees, there are some exceptions. If you own less than 20% of the organization, it may be possible to obtain a loan without providing a personal guarantee. In that case, you may not be able to obtain the amount you need.
Lenders look at the last three years of financial statements:
When you apply for church loans, lenders will typically look at the last three years of financial statements and church history. They will also want to know what your church’s annual giving is like. This will help them gauge whether the church can afford to pay its mortgage each year.
Lenders may also use a stress test to evaluate your church’s finances. For example, they might include a ratio that measures cash on hand. This ratio should equal three months’ salary plus debt payments, or 20 percent of total expenses.
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