Can a church get a bank loan?

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Can a church get a bank loan?

Yes they can … sometimes.

So here’s the deal. Some banks do lend to churches. But even more banks do not.

And the banks that do lend to churches tend to have strict underwriting requirements. To further complicate the borrowing decision, there are a variety of non-bank lenders that may be a better fit for any one particular church.

So let’s dig in.

To start, why are banks hesitant to lend to churches?

#1 – Many banks find it hard to evaluate income and cash flow for a church. Banks are used to underwriting business loans. Banks know how to look at costs, customer base, sales, and profit. But donations from church members are a different scenario. Donations aren’t guaranteed. They are often variable or highly concentrated in a small percentage of a church’s membership base. So evaluating a church’s ability to repay a loan can be hard for a commercial bank. And if the bank doesn’t know if a church can repay the loan, the safest thing they can do is to not lend out the money.

#2 – The security on church loans is less desire-able to a bank. Church properties often pose practical challenges as loan collateral. Unlike common commercial or residential properties, church properties are notoriously difficult to sell. This makes them less attractive to banks as collateral. In addition, foreclosing on a community church is not good PR for a bank. In the case of default on a loan, the bank risks losing other clients if it comes in and shuts down a local church.

#3 – Personal guarantees don’t hold as much weight in church loans. Church pastors typically don’t have huge salaries or extensive personal wealth. So even if a pastor is willing to personally guarantee a church loan, it often isn’t adequate. The bank knows that the pastor can’t afford to pay the loan as an individual, so that personal guarantee doesn’t actually eliminate the bank’s risk. As a result, even with a personal guarantee, the bank will still refuse to lend the money.
Because of these reasons, banks are hesitant to lend to churches.
But where does that leave you? What can you do if a bank declines your church?

What to do if a church can’t get a bank loan.

Fundraising or Giving Campaigns
Donations are the financial lifeblood of churches. For smaller financial gaps, a concentrated giving campaign can be the best approach. This can cover gaps in a church’s operating funds or buying some less expensive equipment.

Donations are much less common as a solution for purchasing a new property outright, as such a large campaign could easily take a decade or more to complete

Grants
Grants provide a potential source of funding without the obligation of repayment. But securing grants is challenging. The application process can be complex and time consuming and competition is almost always EXTREMELY fierce.

Other Banks and Credit Unions.
Most churches apply to their local community bank. But the fact that your church received a “no” from one bank doesn’t mean that you’ll get declined by all banks. It often just means that you applied to the wrong bank.

At Faith Based Funding we’ve developed an extensive network of relationships with banks around the country.

Our team specializes in lining up each church with the best fit lenders, bank or non-bank, that will appreciate that unique church scenario and provide financing. Which leads us to…

Non-Bank Lenders
In our network there is a broad variety of church lenders who are not traditional banks or credit unions. Some of these are private lenders and funds, others are tied to a specific denomination. The key takeaway is that if you’re only looking at banks, you could easily miss better fit financing opportunities.

Who can resolve the question: Can a church get a bank loan?

Church Loan Specialists

With so many complex options, identifying the right strategy can be an overwhelming task. Church leadership typically has decades of experience in ministry, shepherding and growing a flock, not in commercial finance. Church loan specialists – such as our team at Faith Based Funding – support these church leaders in exploring and understanding their options, identifying the best fit funding sources, and applying for financing. These specialists leverage their deep industry knowledge and a huge network of lenders to help churches get financing faster, easier, and with better rates and terms than churches would typically find on their own.

Read our full article on the topic, do banks lend to churches?

Do your banks lend to churches?

So if you’re a church seeking a Bank Loan, where does that leave you?

Here’s the quick review. Some banks do lend to churches in their community, but these banks tend to have strict underwriting requirements. Depending on your unique situation, there are a variety of options to explore including local banks, specialized banks and credit union around the country, a donation campaign, grants, non-bank lenders, and church loan specialists like Faith Based Funding.

In each case, if your church is considering financing, the next steps are clear. You want to prepare!

Revisit and clarify your vision. The first step is to ensure that financing truly aligns with your ministry’s mission and accelerates your success.
Organize your financials. Make sure you have your past financial statements and your budget in order, as well as your plans and projections for the future.
Get expert support. Church consultants, such as our team here at Faith Based Funding, can help your leadership quickly identify realistic options and approximate costs. When it comes to big decisions that will impact your church for decades to come, don’t guess. Conversation is free, and the more you know the better the decisions you will make.

Church Line of Credit Guidebook
Church Line of Credit Guidebook

As a leader of a church, you may find that you are struggling to maintain financial stability while aggressively pursuing your mission and ministry goals. It can be frustrating, but there is a financial tool that can help many churches achieve both stability and...

read more
Are Churches Eligible for SBA Loans?
Are Churches Eligible for SBA Loans?

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....

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Small in Size, Mighty in Mission Small churches, essential community pillars, often face challenges when seeking church loans for small churches. While fostering a close-knit community, lenders can perceive their intimate size as a financial risk. This perception...

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When it comes to whether banks lend to churches, the answer is far from straightforward. Churches' unique financial needs and status create a complex lending landscape that distinguishes them from other entities seeking loans. While securing loans is common for...

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