Business Finance and Church Loan Choices for Church Financing Commercial Mortgage Problems

Church loans are probably the most difficult business finance situation to consistently close successfully. Churches are an integral part of local communities, so it is necessary to improve church financing solutions. Church loan financing will usually require a specialized type of commercial mortgage that is not understood by most business loan advisors and borrowers.

Churches are not typical commercial enterprises but they do have substantial business financing and working capital requirements. This article will offer an overview of four key church loan financing difficulties and a listing of six practical church financing strategies.

FOUR MAJOR CHURCH FINANCING AND BUSINESS FINANCE DIFFICULTIES

Before looking at different business finance strategies for church financing, it is important to discuss typical church loan barriers. A typical church loan will be difficult to arrange due to four primary commercial loan factors:

(1) Church Loan and Commercial Mortgage Obstacle Number One: Churches are usually extremely unique. Because of this, typical commercial lenders are concerned that if commercial mortgage payments are not maintained, it will be difficult to sell the property due to unique property aspects.

(2) Church Financing and Business 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).

It is unfortunately very common for church financing to have been secured only after church members have authorized an individual guarantee for church financing. The need for individual guarantors acts as a serious barrier first because church members might be unwilling to do so and second because there might not be individuals who have enough financial resources to provide an individual guarantee for larger church loan and working capital needs.

(3) Church Financing and Commercial Loan Difficulty Number Three: When church financing is obtained, there are frequently unacceptable 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 Loan and Business Loan Obstacle Number Four: Land acquisition, construction and renovation funding are usually more difficult to obtain than church refinancing and purchases. Because of this, repairs are often postponed and new churches can take years to build.

CHURCH FINANCING: SIX PRACTICAL COMMERCIAL MORTGAGE BUSINESS LOAN SOLUTIONS

There are several prudent business loan strategies for the church loan financing obstacles described previously. Here is an outline of church loan solutions that are available from a select number of non-traditional church lenders:

(1) Church Loan Business Finance Strategy Number One: Non-Recourse Church Financing (to replace private guarantors). The ability to not request private guarantors routinely requires a non-traditional commercial lender. With this church loan financing strategy, church financing will be independent of private guarantors.

(2) Church Loan Financing Commercial Loan Approach Number Two: Long-term business loans. Church financing will produce more effective financial results for the church when it is long-term because payments will typically be substantially decreased.

(3) Church Loan Commercial Mortgage Strategy Number Three: Lower interest rates. Churches have frequently been taken advantage of and have paid higher interest rates than necessary.

With payments limited to prime plus 1% or less, church financing payments will be noticeably reduced. Together with a longer-term church loan, the overall business loan payment decrease will improve church cash flow.

(4) Church Loan Strategy Number Four: Minimum church financing set at $500,000. This encourages churches to finish most business financing in one stage.

(5) Church Loan Business Financing Strategy Number Five: A Higher LTV (up to 90% is routinely doable). This results in a more reasonable amount of 10% or slightly more (rather than 40% to 50% possibilities with many church loan financing alternatives) for the church to provide.

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

The six church loan and business finance approaches described should benefit most churches by facilitating new church construction on an accelerated timetable and allowing refinancing with better church financing working capital conditions. The six church loan financing approaches should result in financial covenants that will contribute to the long-term financial health of prudent churches which adhere to the church financing approaches suggested.

Copyright 1995-2007 AEX Commercial Financing Group and Stephen Bush. All Rights Reserved.

Article Source: http://www.articlesbasecamp.com

Steve Bush is the Founder and CEO of AEX Business Finance - Commercial Mortgage - Church Financing Solutions. Steve and AEX Business Loan and Working Capital provide candid commercial loan advice for SBA loan business financing and business opportunity financing throughout the United States.

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