Previously, we discussed how traditional bank loans for church building projects are often limited by appraisals and the regulations imposed by the Dodd-Frank Act. Fortunately, there are other ways forward. Here are some funding alternatives that can help you sidestep heavy bank regulations and appraisal-based limitations and move ahead with a new or updated church design.
Understanding the Constraints of Traditional Banks
Tight Federal lending regulations have made banks more careful about how much money to lend. The bigger the bank, especially national institutions, the more regulations it must follow and the greater likelihood the bank will downgrade the amount of money it’s willing to lend, even when a church’s financial position is very healthy. The challenge is compounded by the requirement of an appraisal, which can significantly restrict borrowing if the property value doesn’t support your construction goals.
Smaller, local banks may offer slightly more flexibility, but they’re still governed by the same regulatory framework. So, while a community bank might provide a better experience, you’re still not guaranteed the funds you need if an appraisal holds back the loan amount. That’s when it’s time to consider alternatives, like denominational lenders.
How Denominational Lenders Are Different
Unlike traditional banks, denominational lenders aren’t bound to the same appraisal requirements. Instead, they tend to evaluate loan requests in the traditional way, based on cash flow and giving units, and don’t limit the loan amount based on collateral value. Some may even lend beyond the conventional three-times cash flow limit because they’re motivated by the ministry of a particular church rather than its profit margins.
The downside to this type of lending is that it’s often at higher rates, as denominational lenders are taking on riskier investments. But, if church leaders can’t get the loan they need for a project because of a disappointing appraisal, the extra cost may be worth considering.
Denominational Lender Options to Explore
There are a number of denominational lenders who specialize in working with churches to fund building projects. Here are some examples:
- Wesleyan Investment Fund – Serves primarily Wesleyan-affiliated churches.
- CDF (Christian Development Fund) and CFR (Christian Financial Resources) – Focused on certain denominations but known for supporting ministry growth.
- Thrivent – Offers more flexible, cross-denominational lending options.
Many major denominations, including Baptist and Methodist traditions, have similar financial arms or partnerships. It’s worth doing some research to see what might be available from non-bank lenders that align with your church’s values.
Self-Funding: A More Creative Route
Another intriguing alternative to consider is self-funding, which involves partnering with a third-party organization to raise capital through individual investors, often members or supporters of your church. These investors contribute funds in exchange for a favorable return, such as 5–6% interest, which can be more attractive than current bank rates.
While self-funding offers more flexibility and can reduce overall borrowing costs, it requires careful legal structuring. You’ll need strong documentation, a clear repayment plan, and perhaps help from an experienced firm to organize and manage the investment.
Self-funding is often more practical for smaller-scale projects, but it could be successfully used for larger church designs when the right partners are involved. It’s an option that can offer both financial savings and even a sense of congregational ownership in the project.
Want to explore funding options and other information on the church design and building process? The McKnight Group regularly hosts free i3 webinars that cover a wide range of topics. These webinars offer excellent opportunities to gain insight and get your questions answered. You can see topics and register for upcoming sessions on our website.