ECCU : Church Financing Options

Church Financing Options

From direct lenders to church bonds, you have a wide range of options to finance your church's vision. With so many funding sources, which is the best alternative?

This article will educate you on your financing options to help determine which solution meets the financial and stewardship needs of your growing and thriving ministry. Church financing is highly specialized. Your ministry needs a financial partner that fully understands your mission, vision, and passion.

Direct Lenders � Direct lenders are financial institutions that are qualified, equipped, and regulated to offer your church financing from start to finish � including the application process, underwriting, approval, and loan funding procedures. Direct lenders make their own lending decisions and fund loans from a pool of money others have put on deposit with their institution.

Credit Unions � Credit unions are not-for-profit financial cooperatives that are owned by members who have open accounts. They exclusively serve groups that have something in common with each other.
Credit unions are direct lenders that offer your ministry many of the same banking services as commercial banks. Credit unions typically have a common bond with their members and offer products and services specifically designed for their membership base. They hold mortgages in their portfolios or may sell all or a portion of these loans to investors.
Many credit unions have limitations on the size of their lending ability; however, some larger credit unions like ECCU regularly fund multi-million dollar loans to their members.
Mortgage Banks � A mortgage bank is a direct lender that specializes in originating mortgage loans for resale to investors. The bank staff reviews your application and makes the decision to lend your ministry money.
Borrowers from mortgage banks often don�t experience a long-term relationship with their lender as the loans and servicing are sold off to organizations such as Fannie Mae or Freddie Mac.
Commercial Banks - Commercial banks are also direct lenders. These financial institutions usually offer a menu of loan products, just as mortgage banks do. They typically hold mortgages in their portfolios or may sell all or a portion of these loans to investors.
Commercial banks specialize in working with businesses and organizations but often treat churches and ministries in the same category as for-profit businesses.

Indirect Lenders � Indirect lenders are those parties that act as intermediaries to facilitate securing your mortgage loan. Indirect lenders require a third-party financial institution to underwrite, approve, and fund your loan. The third-party lender owns your loan contract and collects the principal and interest payments from your ministry.

Indirect lenders are often able to �shop� your loan around, but also charge additional fees on top of the costs the actual lender charges. In addition, because indirect lenders act as middlemen for your loan, your ministry will not have an established relationship with the institution that owns and services your loan.

Mortgage Brokers, or �Multi-Lender Platforms� � A mortgage broker or multi-lender platform, as brokers are now called on the Web, is a middleman who may represent the mortgage loan products of many different lenders. The broker will typically charge a percentage of the loan amount for their services to direct you to a lender and help you qualify for the loan. The actual application process, underwriting, and approval are done through the third-party lender. Usually the cost of obtaining help from a broker is at least 1 percent of your loan amount, which may become a significant expense for your ministry.
Internet Lenders � Mortgage lenders are abundant on the Internet. In recent years, Internet lenders have begun offering fast and easy loans at competitive rates. Some are online sites for brick-and-mortar financial institutions or mortgage brokers. Others are Internet-based banks or brokers. Internet lenders may or may not be direct lenders, and it may be difficult to establish a long-term personal relationship with them.
For security reasons, it is critical to understand exactly who you are dealing with over the Internet when disclosing confidential financial information. Your ministry should never trust an Internet lender website at face value.

Church Bond Financing � Bond financing involves offering church bonds to investors to fund your ministry loan. Bond financing is described as a long term, fixed rate financing option, usually over a 20-year period, but the up-front fees associated with bond financing are typically higher than more conventional funding sources. Some bond companies commit to purchasing all of the necessary bonds, guaranteeing your loan will be fully funded. Other bond companies issue bonds on a �best effort� basis � the bonds are not guaranteed to be sold, nor is the church loan guaranteed to be funded.

Denominational Financing � Some church denominations offer financing to churches within their membership. The funds for the financing are derived from a pool of financial resources from other member churches. Denominational funding can be limited to the amount of money available within the fund and is also restricted in who can receive financing.

Fundraising � Launching a capital campaign program or fundraising drive can provide your church with necessary funding, but may be one of the biggest challenges your church will ever face. While churches can be quite successful raising money, most churches are not able to raise all funds necessary to accomplish their goals. Capital campaigns should be seen as an important component of your church financing but your ministry should plan to supplement the campaign with funds from a direct lender or other financing source.

Due to their size and complexity, fundraising efforts take a significant amount of time and congregational support to be successful.

Private Notes � Private notes are loan contracts your church enters into with high net-worth individuals who lend money to your church. Asking members of your congregation to sign private notes for church expansion is usually not a good alternative. There are theological and philosophical questions that can arise when the church becomes indebted to one, two, or many individual members. In addition, should the note holder(s) leave the congregation and require immediate repayment, without proper precautions, your ministry could find itself in the uncomfortable position of having to repay large sums of money in a short amount of time.

Learn more about the options you have for meeting your church�s needs.