Church loans: regulations, requirements, and financing options

What is a church loan?

A church loan is any financing that a religious or faith-based organization (including Christian, Jewish, Muslim, or other religious groups) takes out to help with the cost of building, maintaining, renovating, expanding, or refinancing a property. A church loan may also be used to get cash to help improve cash flow and cover daily expenses of running a religious organization.

In general, faith-based organizations and churches are nonprofits, which means that they are tax-exempt and receive other benefits. Typically a church will receive funding from tithes or offerings from constituents as well as grants or other financing from their overarching religious affiliations. They may also receive money in the form of tuition for a church-run school, camp, after school program, or renting the property out for secular meetings and events. 

However, the cost of maintaining a property may be more than a church makes from its attendees’ tithing or other income sources. In this case, the church or faith-based organization may decide to seek out a church loan. 

Can churches take out business loans?

Churches and faith-based organizations can take out small business loans, including those offered by the Small Business Administration (SBA). Because they are usually nonprofit organizations, churches may have better luck getting a loan product meant for a nonprofit as opposed to a traditional business loan.

Because churches are considered high-risk organizations, it may be difficult to find a business loan from a traditional bank or financial institution. There are many faith-based financial institutions that loan specifically to churches and other faith-based organizations. Alternative lenders may also be more likely to loan to a church or faith-based organization, although these loans can come with strings attached like higher interest rates, shorter terms, or a longer loan process including more paperwork. But funding can arrive as quickly as a few business days.

A church may consider business credit cards or a business line of credit to help manage daily expenses or smaller financing amounts. These are typically easier to qualify for, and you only pay interest on the money that you spend, rather than a chunk of money all at once. 

How does a church get a loan? 

A church can go about getting a loan in much the same way as other organizations or small businesses do. 

First, make sure you’re financially ready. Evaluate the church’s financial health, including income, expenses, and existing debts. Lenders will want to see that the church has the capacity to repay the loan. Then clearly define the purpose of the loan, whether it’s for purchasing property, building construction, renovations, or other specific needs. This information will help determine the type and terms of the loan.

Next, you’ll want to create a business plan that outlines the purpose of the loan, the church’s mission and vision, financial projections, and a repayment strategy. This plan serves as a crucial document when applying for a loan. Also, prepare financial documents, including audited financial statements, budgets, and bank statements. Lenders will review these documents to assess the church’s financial stability.

You’ll then research lenders. Identify financial institutions that specialize in church loans or have experience working with nonprofit organizations. Local banks, credit unions, and religious financial organizations may offer suitable loan options. Finally, submit your loan application with all required documentation, such as the business plan, financial statements, and any additional information requested by the lender.

Types of church loans

There are several types of church loans you can apply for when you’re looking for financing for your church. Here are the most common options:

• Mortgages
• Construction loans
• Nonprofit business loans
• Faith-based financial institutions
• Alternative loans
• Business lines of credit
• Business credit cards

The type of financing that works for your business depends on factors like the purpose of the funding (building a new church vs. paying for minor repairs), how much you need to borrow, and how quickly you need the money. 

Regulatory requirements for church loans

Church loans are different than other types of business financing in what they require the applicant to submit. Here are the basic requirements when applying for a church loan:

• Three years of financial statements, like balance sheets and income statements
• History of the church, like the denomination, background, and location(s)
• Church leaders’ biographies
• Information on church leadership
• Value of property, if applicable
• Resolution that allows church leaders to apply for funding
• Budget for project
• The constitution and bylaws of the church
• Survey and valuation of property
• Total of church’s giving units

Lenders that specialize in church loans

There are lenders that focus on giving out financing to churches and other religious institutions. They fill in the gap where traditional banks are less willing to lend to religious organizations. Because these lenders specialize in church financing programs, they are more aware of the funding needs of a church, which may mean a simpler application process. 

The interest rates you get from these lenders may be higher than other options, so it’s always a good idea to shop around for your best option.

Where to find church loans

Finding a church loan may be somewhat more difficult than a traditional real estate loan or other type of financing, but there are many institutions that cater specifically to religious organizations. If your church has an existing relationship with a bank or credit union for your day-to-day financial workings, it’s best to look to them first and see what they may be able to offer. 

Business loans for nonprofits can be an excellent place to look for a church loan. A church that is trying to renovate an existing building, expand a place of worship, or even buy real estate to build a new church may be able to qualify for a commercial real estate loan. Some that cater specifically to non profits include:

• Lendonate
• Bridgeway Capital
• SmartBiz

Many traditional banks and financial institutions offer loan programs for church lending for places of worship and faith-based institutions, including:

• AGFinancial
• Union Bank & Trust
• Thrivent

There are also faith-based lending institutions that cater specifically to churches, such as:

• Griffin Church Loans
• BCLC Church Loans
• UIF Islamic Financing Solutions
• Christian Community Credit Union

Alternative lenders who offer short-term business loans may be a good solution for a church or faith-based organization that has trouble finding other sources of financing, especially if they have bad business credit or don’t have a long enough financial history to qualify for traditional loans. Some short-term lenders include:

• Kiva
• Nonprofit Finance Fund
• OnDeck
• Credibly

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Term Loan by OnDeck

This is a great option for businesses with consistent revenue, seeking competitive pricing working capital products. OD is known in the industry for their transparency and speed to fund. OD is the largest online lending company, which provides confidence to users with finding the right long-term partner to help fuel their company's growth.

Pros

• One application, two paths to finance your business - applicants are reviewed for both a Term Loan and Line of Credit
• Minimal paperwork
• Fast approval time
• Transparent pricing
• “White Glove” customer service
• Access to multiple lending options.

Cons

• Need a minimum of 1 yr time in business
• Not available in all states.

Funding Amount

$5,000 - $400,000

Cost

As low as 29.9% APR

Repayment Terms

Daily, weekly up to 24 months

Funding Speed

48 hours

Show details

Apply now

Short-Term Loan by Credibly

As quickly as 4 hours

Pros

• Set payments
• Pre-qualification, which means you can pre-qualify without hurting your credit
• With strong cashflow health, low personal credit scores still have great options here

Cons

• Must have at least $15,000 a month in deposits
• Repayment terms maybe shorter for some users

Funding Amount

$5,000 - $600,000

Cost

As low as a 1.11 FR

Repayment Terms

Daily & Weekly automatic debits; 6 to 15 month repayment terms

Funding Speed

As quickly as 4 hours

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Can a church get a mortgage? 

Yes, churches can typically obtain mortgages to finance the purchase or new construction of property. Many financial institutions, including banks and credit unions, offer mortgages for religious organizations. The approval process may involve demonstrating the ability to repay the loan and providing information about the church’s financial stability and congregation size. 

Additionally, some religious organizations may explore financing options with lenders that specifically cater to the needs of churches and other nonprofit entities. A church mortgage may be short-term, which needs to be repaid quickly, or long-term, which allows you years to pay it off.

Do churches have mortgages?

Many churches and places of worship do have mortgage loans, because real estate is expensive, even for churches. Most religious institutions will have fundraising drives among their communities or constituents to help pay for big expenses like new church buildings, but they may still need major financing to pay for a new property or renovation. 

Church loans for buildings

Churches can buy an existing building to use for their congregation. If the cost of the building is much more than a church can afford, they might consider using a secured loan. The building or the land typically acts as collateral on a secured loan, which means the lender can seize the collateral if the church fails to pay off the loan. 

On the other hand, if the building only needs minor upgrades, you might be able to use a smaller unsecured loan. These don’t usually require collateral.

How to pay off church loans early

Paying off church loans early involves careful financial planning and disciplined management. Here are steps that a church can take to accelerate the repayment of its loans:

1. Create a budget: Develop a comprehensive budget that outlines all income and expenses. This will help identify areas where expenses can be trimmed to allocate more funds toward loan repayment. Plus, only borrow what your ministry needs.
2. Increase income streams: Explore ways to increase church revenue, such as hosting fundraising events, encouraging regular donations, or diversifying income through activities like renting out facilities.
3. Allocate surplus funds: If the church experiences surplus funds from donations or events, allocate a portion of these funds towards loan repayment rather than expanding expenses. Paying more than your monthly payments help decrease the total interest you’ll pay over time.
4. Fundraising campaigns: Launch specific fundraising campaigns focused on paying off the debt. Communicate the importance of paying off the loan to the congregation and seek their support.
5. Negotiate favorable terms: If possible, negotiate with the lender for more favorable terms, including lower interest rates or the ability to make additional payments without penalties.
6. Allocate windfalls: If the church receives unexpected windfalls, such as a significant donation or grant, consider allocating a portion or all of these funds toward the loan to accelerate the payoff.
7. Establish a loan repayment fund: Set up a dedicated fund specifically for loan repayment. Regularly deposit funds into this account to create a disciplined approach to retiring the debt.
8. Consider refinancing: Explore the option of refinancing the loan for better terms. Lower interest rates or more favorable repayment schedules can contribute to faster debt reduction.
9. Encourage stewardship: Educate the congregation about financial stewardship and the importance of contributing to the church’s financial health. A financially supportive congregation can accelerate the loan repayment process.
10. Monitor and adjust: Regularly review the church’s financial position and adjust the repayment strategy as needed. If there are changes in income or expenses, adapt the plan accordingly.

It’s crucial for the church leadership to work closely with financial advisors and legal professionals throughout the process to ensure compliance with regulations and make informed financial decisions.

What are the going loan rates for church loans?

Interest rates have increased since the lows of the pandemic, so you’ll pay more to borrow money today than you would have a few years ago. The amount you’ll pay in interest completely depends on the type of church loan you use. Today, you can expect to pay anywhere from around 7% to over 350% in interest.

Because of the wide variety, you’ll want to research all your options to find what fits best for you.

Uses for church loans

A church or faith-based organization can use a church loan for a number of reasons, including:

• New church construction
• Expanding an existing church building
• Renovations on an existing church building
• To refinance an existing mortgage and get cash for day-to-day expenses or other purposes
• Expanding church programs and outreach
• Adding a school or camp functionality to church infrastructure
• Improving accessibility of an existing church structure for members

How do you get a loan for a church?

The loan options available for churches can depend on your location, financial status, down payment, available collateral, and much more. Some basic steps before signing onto a loan include:

• Do your research — Don’t just take a loan from the first lender that you come across. Make sure that the bank or financial institution has your best interests in mind, that their loan programs match your church’s needs, and you understand the church loan requirements. Look for competitive rates, specific loan programs that meet your church’s unique needs, and make sure your lender is a Member FDIC. Also, beware of balloon payments, which may make you refinance your loan every three years to five years whether you need it or not. 
• Know your credit score — Your business credit scores are one way a financial institution will determine whether or not you qualify for a loan and what kind of loan terms you can get. You can manage your business credit scores and build your business credit history with regular use of Nav Prime.
• Gather your financial information — Just because you’re a religious organization doesn’t mean a bank is going to take your word for how financially sound you are on your loan application. You’ll need to know your income from all sources, including tithing, renting, and tuition payments, as well as any debt you have, such as an existing loan. 

How much can a church borrow?

The loan amount a church can borrow depends on several factors, including:

• Business credit
• Time in business 
• Financials including income from tithes, offering, tuition, rent, and other sources
• Which lender you select

In general, a religious organization or church can borrow up to four times the gross income from tithes and offerings. Many financial advisors also recommend that you not spend more than 30% of your church’s income on debt payments for a mortgage or other loan, just as you would budget for a personal home mortgage payment. Since tithes and offerings can be cyclical in nature and not necessarily the same from month to month, having a good idea of your yearly income over time can help you calculate these numbers.

Getting a loan for your church or religious institution can help you build a place of worship or improve your existing structures. Nav can help you do the research to find loans that you qualify for by tracking your business credit and other factors. Use Nav to get started today.