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Some loans from the Small Business Administration (SBA) are available to churches.
Other SBA loans are not.
To understand when a church can get an SBA loan, we’ll walk through the SBA’s mission, the types of loans the SBA offers, and eligibility criteria for churches.
The SBA is a U.S. government agency tasked with helping Americans start, grow, and build resilient businesses.
One way the SBA achieves this mission is by providing businesses with access to capital.
The SBA does NOT lend this money directly to small business owners or churches.
Instead, it guarantees certain loans.
In other words, if the borrower defaults on the loan, the SBA agrees to repay the debt to the lender.
This reduces risk for lenders, as they know that either the borrower or the US government will repay the loans.
As a result, these lenders are willing to lend to small businesses that they would otherwise consider too risky.
Given the SBA’s mission to support American businesses, it makes sense that churches would not be eligible for SBA loans, as they are not businesses.
Traditionally, this was indeed the case.
Faith-based organizations, including churches, were legally barred from receiving standard SBA loans due to their non-profit status and the separation of church and state.
However, this changed with the introduction of specific relief programs, such as the Paycheck Protection Program (PPP) and the Economic Injury Disaster Loans (EIDL) that were part of the COVID-19 relief efforts.
These programs were intended to see all of America through the pandemic and were opened to churches and other faith-based organizations.
But what about today? Can a church get an SBA loan now?
Each SBA program has its own requirements.
So next we’ll examine each program, what it is used for, and when a church is eligible.
7(a) loans are the most common SBA loans.
7(a) loans can be used for working capital, refinancing current business debt, purchasing and installing machinery and equipment, and purchasing furniture, fixtures, and supplies.
Unfortunately, businesses must operate for profit to qualify for 7(a) loans. This excludes churches.
7(a) is a “no”, so let’s move on to SBA 504 loans.
504’s provide long-term, fixed-rate financing for fixed assets that promote business growth and job creation.
But again, to be eligible for a 504 loan, a business must operate as a for-profit company. Churches are again excluded.
How about SBA relief programs?
During the COVID-19 pandemic, the U.S. government aggressively funded the Paycheck Protection Program (PPP) and the Economic Injury Disaster Loan Program (EIDL).
Aiming to mitigate the impact of COVID nationwide, the SBA significantly expanded eligibility qualifications.
Read our extended article addressing the question “Can Churches Get SBA Loans?“
As part of this effort, the SBA made churches eligible for both the PPP and EIDL programs.
This was a significant departure from the SBA’s traditional stance on lending to religious organizations, as churches were previously excluded from standard SBA loans.
But it’s important to note that these COVID loan programs are now closed.
No new applications can be made, including by churches.
Churches DO remain eligible, however, for both Economic Injury Disaster Loans and Physical Disaster Loans in the event of a declared disaster.
Physical Disaster Loans can be used to repair or replace disaster-damaged property, including real estate, inventories, supplies, machinery, and equipment.
Churches can use these loans to repair or replace their facilities, such as sanctuaries, classrooms, and offices, that were damaged or destroyed in a disaster.
Economic Injury Disaster Loans are working capital loans that help organizations cover their ordinary and necessary financial obligations that cannot be completed due to the disaster.
Most non-profit organizations, including churches, are eligible for EIDLs.
In sum, SBA disaster loans remain available for churches, but 7(a) and 504 loans are off the table.
So how do churches get financing?
Churches typically use non-SBA loans to meet their financing needs.
Church mortgages fund the purchase of new land, buildings, or other real estate.
Church Construction Loans are short-term loans that finance the construction or renovation of facilities.
Church Equipment Loans finance the purchase of equipment, from audio visual systems, to kitchens, to office tech and more.
Church Lines of Credit are a flexible financing tool that allows churches immediate access funds whenever needed, up to a predetermined limit.
Church Vehicle Loans cover the purchase of vehicles, including buses, vans, trucks, and cars.
So if your church is exploring financing, what should you do next?
Making sense of the different types of financing available, sorting through thousands of lenders, compiling application paperwork, and negotiating rates and terms can be a daunting process.
Church loan consultants do the heavy lifting to take this burden off church leaders.
Contact a church loan consultant.
Specialists, such as our team here at Faith Based Funding, support churches through the entire funding process.
We help churches understand their options, evaluate the pros and cons of different strategies, and make informed decisions.
We believe that the more information church leaders have, the better they can guide their flock.
If your church is considering a loan, we’re here to support you every step of the way. In a short conversation, we can let you know what is possible for your congregation.
Reach out today to start a conversation.
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