Church and worship facility financing applies to any house of worship for any religion, and the principals of underwriting are the same for almost every size of transaction. There are, however, some lenders who specialize in evangelical Christian churches because the amount of donations per church member tends to be significantly higher than the average.
One form of worship facility financing is the bond, of which there are two types. One type involves members of the congregation who buy the bonds themselves. The other type is the mortgage bond, which features a firm that sells the bonds to the general public and certain institutional investors. This is a less time consuming method than the former. However, because it is a security sale, there are significant costs to obtaining this financing, so closing costs tend to be higher. However, the interest rate is competitive.
Most worship facility lenders tend to limit the amount of financing they will provide to a few million dollars. The mortgage bond type, however, will go up to $6 million to finance a facility. In an age where many denominations are establishing their own private schools for their congregation, higher loans amounts are a must. This type of financing is non-recourse to the trustees.
This is a straightforward loan available to worship and religious education facilities. The lender offers a variable rate product and a low fee. There are specific underwriting criteria such as debt to congregation members and revenue generation for the past three years. Revenue and congregation growth are given more weight than expenses.
Undoubtedly, buying an existing facility is significantly less expensive than building a new worship facility. Churches are plentiful and their resale value is very low as it is closely tied to the neighborhood. However, demographics change, and many congregations no longer wish to make the trek to the facility of their parents.
Construction financing for worship facilities is easiest for growing congregations. The lender must have faith that the new facility will attract enough members to pay for it at the demonstrated rate of giving. But seldom does a lender take anything on faith. Ownership of the land for the new facility or having a significant building fund in place would enable serious consideration of a construction loan request.
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