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Holy Dilemma...

by  | Corporate
Posted:     Updated: Oct 19, 2017  1:05 ET
 
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Church financing is possibly the most difficult commercial mortgage to arrange. Because churches represent an integral part of communities, if possible, the desire is to improve church loan options. Still, church loans-to include acquisitions, suffer several challenges. As a result, specialized business finance strategies are required.

With certainty, churches are not typical business organizations. Nonetheless, these organizations have real and substantial business loan needs. This article serves to provide an overview of primary church financing difficulties; plus, proffer a practical church loan solution.

Before addressing possible solutions, for common church lending needs, it remains important to discuss typical barriers. Historically, for several reasons, church loans and acquisitions represent a challenge.

First, church properties are unique. For instance, if commercial loan payments are not met (and the lender is required to assume ownership), because of unique property features, the concern is that it will prove difficult an lender to divest its interest or find a new mortgagor.

Second, lenders frequently require personal guarantors. The financial structure of churches does not lend itself well to traditional lender/guarantor approaches. With lack of guarantors, because of the difficulties associated with reselling church property, lenders remain less inclined to fund. Invariably, after one or more church members have provided a personal guarantee, church financing is obtained.

Third, when church financing is obtained, extraordinarily conservative business finance terms are routinely unacceptable; i.e. smaller loan-to-values (LTV) of 50% to 60%, higher interest rates, short-term bridge loans and subsequent balloon payment. These onerous terms are tantamount to the declination of a church. If terms are accepted, due to unrealistic commercial mortgage requirements, the church is likely to experience continuing financial difficulties.

Fourth, as earlier identified, renovation, construction and land acquisition are more difficult for churches to finance. As a result, needed repairs are often postponed (indefinitely). Thus, for newer churches, the environment is less than habitable for parishioners-impacting membership and revenue or gifted contributions.

Church loan financing approaches should result in financial covenants that contribute to the long-term financial profile. For instance, with payments based on prime plus 1%, church financing payments are reduced. In combination with longer-term loans (and the introduction of interest only payment options) overall payment reductions make a significant contribution to church cash flow.

Invariably, appropriate church financing is always difficult to complete. With the most ardent commercial mortgage and business finance strategies, commercial church real estate financing has unavoidable complexities. Because of these complexities, business loan transactions, church borrowers should attempt to acquire an understanding of unique lending dynamics. In understanding, there is wisdom.

For commercial real estate funding, detailed and value added conversation, contact: 800-759-7593 or lucevfinance@aol.com

Topics: Commercial lending | Commercial niche loans
More by: LUCEV Finance & Investment Group

 

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Holy Dilemma...

by LUCEV Finance & Investment Group | Corporate
Posted: Aug 11, 2017  16:54 ET    Updated: Oct 19, 2017  1:05 ET

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