What Kind of Financing Is Right For Your Church?

Keep Your Church Debt Free!

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Churches often find themselves in need of a little extra financing. Whether they're interested in new construction, remodeling, refinancing existing debt, or investing in new equipment or property, a bit of extra money can do wonders. There are three primary options for churches seeking such financing -- mortgages, unsecured loans, and bonds.

The first thing you'll want to do, however, is determine what your goals and needs are. What sort of project are you going to be working on? How much money will you need to complete it? What's a reasonable time frame for paying off the debt you'll incur in order to make this project happen? These sorts of questions are best handled by way of a committee, which will likely include your church officers and senior members of your congregation.

Church Mortgages
For churches with existing capital like buildings and property, mortgages can be a great option for nearly every sort of large church project. Basically, a mortgage is an agreement which places a temporary lien on your property as security against a debt and/or loan. The two most common types are long-term fixed rate and short-term variable rate mortgages. Mortgages loans are generally in amounts exceeding $100,000 USD. For more information, please see Church Construction Loans.

Unsecured Church Loans
Unsecured church loans are generally used for smaller projects, such as remodeling and purchasing new equipment. A promissory note is signed by both the church and the lending institution, detailing the terms of the loan and how and when it will be repaid. Unsecured loans are generally much easier and less costly to secure than mortgages. This type of loan is typically for an amount between $20,000 and $100,000 USD.

Church Fixed-Rate Bonds
Another option for church financing involves fixed-rate bonds. Bonds are most commonly issued in amounts of $250, $1000, and multiples thereof. In this scenario, the church is the borrower, and the purchaser of the bond is the lender. The church issues bonds which can be bought by the public -- these bonds then pay regular interest dividends on the principle (the initial cost of the bond) to their owners, until they reach maturity. Maturity is the agreed upon life of the bond, and can range anywhere from 6 months to 15 years. At that time, the principle amount and any outstanding interest is paid to the owner and the bond is cancelled.

This can be a wonderful option for churches with strong communities, as members of their own congregations can purchase the bonds as a way to invest in and support the church. Alternately, bonds are a publicly traded commodity, and can be bought on sold in the bond market by corporations and private citizens from around the world.

***NOTE: The interest income received from bonds is taxable, even when issued by churches. However, this interest income is also deferrable through individual retirement accounts (IRAs) and 401(k) plans.

Fixed-rate bonds are also an attractive choice for churches because they allow for a lower cost of capital, making it easier for them to achieve their financial and material goals.

Written by: Bob Robertson