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Church Loan Problems - Church Financing Solutions |
By:
Stephen A. Bush |
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Church loans are probably the most difficult form of commercial financing to successfully close. Churches are an integral part of local communities, so it is necessary to improve church financing solutions. In most situations church loan financing will require a specialized type of commercial real estate loan that is not understood by most church loan advisors and borrowers.
Churches are not typical commercial enterprises but they do have substantial business financing requirements. This article will offer an overview of four key church loan financing difficulties and a listing of six practical church financing strategies.
Four Major Church Financing Difficulties
Before looking at different strategies for church financing, it is important to discuss typical church loan barriers. A typical church loan will be difficult to arrange due to four primary factors:
(1) Church Loan Financing Barrier Number One: Most church properties are unique in comparison to other commercial properties. Due to this, church lenders are likely to be concerned that if business loan payments are not made as agreed, it will be a challenge to find a new owner interested in the unique property attributes.
(2) Church Financing Difficulty Number Two: Lenders frequently want personal guarantors for church loans, and this requirement is not appropriate for church financing. The financial structure of churches simply does not lend itself to a traditional lender/guarantor approach. But most lenders are uncomfortable with the potential lack of guarantors (especially because of the previous observation about the difficulty of reselling the church property should it become necessary).
As a result, it is common to find that church loans have been obtained only after one or more church members have provided a personal guarantee for a church loan. The requirement for personal guarantors acts as a severe obstacle because church members might be unwilling to act in this capacity and because there simply might not be individuals who have sufficient net worth to provide a personal guarantee for a large church loan.
(3) Church Loan Obstacle Number Three: When a church loan is approved, there are often onerous terms such as not enough financing, short-term loans, low loan-to-value (LTV) of 50% to 60% and high interest rates. These unacceptable terms are similar to the church financing being disapproved, and if the terms are accepted, the church might experience financial problems due to the commercial mortgage loan conditions.
(4) Church Financing Difficulty Number Four: Construction, renovation and land acquisition are even more difficult for churches to finance than purchases or refinancing. As a result, needed repairs are often postponed indefinitely and new churches frequently take many years to become a reality.
Six Practical Church Financing Solutions
There are several prudent business loan strategies for the church loan financing obstacles described previously. Here is an outline of church loan solutions that are available from a select number of non-traditional church lenders:
(1) Church Loan Financing Approach Number One: Non-Recourse Church Loans (replacing individual guarantors). The willingness to eliminate individual guarantors is likely to require a non-traditional church lender. With this church financing approach, church lending will not depend on individual guarantors.
(2) Church Loan Strategy Number Two: Long-term church loans up to 30 years. Church loan financing will be more successful when it is not short-term (much lower monthly payments are likely).
(3) Church Loan Strategy Number Three: Lower interest rates. Churches have frequently been taken advantage of and have paid higher interest rates than necessary.
With payments limited to prime plus 1% or less, church financing payments will be noticeably reduced. Together with a longer-term church loan, the overall payment decrease will improve church cash flow.
(4) Church Loan Strategy Number Four: Minimum church financing set at $500,000. This encourages churches to finish most business financing in one stage.
(5) Church Loan Financing Approach Number Five: Higher LTV (75%-85% is possible). This produces a realistic amount of 15% or so (compared to 50% scenarios with much church financing) for the non-financed portion in refinancing or purchase down payment.
(6) Church Financing Solution Number Six: Church loans can now include new construction, renovation, land acquisition, purchase and refinancing. Because of more flexible church loans, it is no longer necessary for these vital church financing needs to be postponed indefinitely.
Altogether the six church loan financing strategies provided above should produce significant benefits for many churches by allowing refinancing with improved financial terms and by facilitating the new construction needs of churches much more quickly. The six church loan strategies should provide financial terms that will complement the long-term financial condition of pragmatic churches which follow the church loan financing strategies described.
Copyright 2005-2007 AEX Commercial Financing Group, LLC. All Rights Reserved.
Contact S.A. Bush at AEX Stated Income Business Loan and Commercial Mortgage Solutions for commercial financing - commercial mortgage strategies Get your own completely unique content version of this article.
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Article Source: http://www.statssheet.com/articles/article53874.html |
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