It’s a new year, and if you’re considering making any big changes for your church in 2017, you might be wondering where to start. First thing’s first: financing. We’ve shared some information about what you need to know about preparing your church financing project, and a little about how lenders determine your financing, but you may not have decided to jump on the building or remodeling bandwagon just yet.
It’s certainly true that things have changed a lot since 2008 (before Dodd-Frank), and funding your new church building or renovation project can be more challenging now. Fortunately, if you think outside the box, there are some alternative church financing options available for your church building project.
Denominational and Ministry Lenders
One place to start is with your own denomination and ministry partners. Broader church organizations are very familiar with the church funding limitations created by Dodd-Frank and its appraisal requirements, so they know the difficulties churches face when attempting to secure funding. These organizations will often create church financing packages that reflect the actual value of your new or renovated church building, rather than focusing solely on appraisals and resale value down the road.
Examples of such denomination and ministry lenders include the Wesleyan Investment Fund, Church Development Fund, and Thrivent. In many cases, you must be a member of the represented denomination to take advantage of its church funding options, but sometimes they are willing to lend to outside churches. It never hurts to ask!
Church Financing Through Investing Organizations
Another church funding option is to obtain individual investors through an external organization. These organizations meet with you to talk about your project, then put together a package that they offer to investors. Because it’s an investment, not a donation, the investors don’t get a tax write-off for their church financing support, so expect to pay interest on what is borrowed. The rate of return the investors receive (somewhere between 2–5 percent) is attractive to them because it’s more than they get these days with CDs and money market accounts or similar types of bank investments.
Self-Funding Your Church Building Project
A third church financing option is to create your own self-funding organization. This allows your church to have more control over the terms and interest rate. You also get to invite church members to literally invest in your church’s vision for the future, which is great.
However, with this option, you will need to carefully explain to church members both the benefits and disadvantages of self-funding as an investment organization. Church members who become lenders will not be able to take a tax write-off for the amount they lend—again, it is not a donation. On the other hand, they will get their money back with interest—rather than having that interest paid to a bank or other lending institution.
Being Good Stewards
Because each of these alternative options has some differences from your standard institutional loan, it’s very important to carefully investigate each church financing possibility. Avoiding traditional banks doesn’t mean foregoing your fiduciary responsibility and good stewardship.
Our free i3 webinar series is designed to help church leaders make informed decisions about the future of their church. It’s part of how we support good stewardship for all churches, not just those with whom we work directly. Stay tuned, because our 2017 webinar series topics will be published shortly!