As published in Scotsman Guide's Commercial Edition, October 2007.
It's true that securing financing for churches can be difficult. Many lenders steer clear of churches. After all, if a church loan enters default, what bank wants the potentially negative publicity of foreclosing on it?
Lenders are also reluctant because most churches are considered special-use facilities. Unlike other commercial properties, which usually can be remodeled to accommodate almost any use, there is only one use for most church facilities. Unoccupied churches consequently tend to stay on the market a long time before they are resold. This limits the number of potential buyers if the lender has to remarket the building.
Making the financing process even more difficult are the myths about funding this kind of transaction. Debunking the following five common myths can help you better understand the process of financing churches.
1. If a church has enough money to buy an existing facility, then it has enough to build a better facility.
On the surface, this statement is true. But the adage is also true: The devil is in the details. Congregations may spend thousands of dollars on plans only to find that there is no way to get the new facility financed and built. Don't let your buyers find out the hard way that:
Construction projects often require more upfront fees than those needed to acquire an existing facility;
Building is a more involved process and therefore, riskier; and
Sometimes churches run the risk of being misled by unscrupulous architects, engineers, general contractors or even lenders.
Buying an existing building at a good price is often the least expensive option. If the church does decide to build, however, it will benefit from your familiarity with the building process and the relationships you have with trusted professionals.
2. Churches must have a big downpayment at closing.
This is not necessarily the case. At a minimum, the church must be prepared to pay soft costs, such as appraisals, surveys and other third-party reports. But depending on the deal and how it is structured, the borrower generally will be asked to bring between 10 percent and 30 percent of the purchase price to closing. Although this is a wide range, it is impossible to narrow it without specifics about the church and the loan scenario.
Page: 1 2 Next