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...
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,...
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....
Like any other organization, churches may need financial assistance to support their operations, expand their facilities, or undertake new projects. While there are various sources of funding available, one option that churches may consider is applying for a Small Business Administration (SBA) loan. However, it’s essential to note that not all SBA loans are available to churches. Understanding which ones are available and the eligibility criteria for each can save time and effort.
Can churches get SBA loans? This article will provide an in-depth understanding of SBA loans, their relevance to churches, and how to leverage them effectively. We will cover the types of SBA loans, eligibility criteria for churches, and steps to secure church financing.
To know if churches can get SBA loans, it is essential to understand the SBA’s mission and how it operates. The Small Business Administration (SBA) is a U.S. government agency supporting entrepreneurs and small businesses. The mission of the SBA is to maintain and strengthen the nation’s economy by enabling the establishment and viability of small businesses and assisting in communities’ economic recovery after disasters.
The SBA helps businesses in four primary ways: access to capital (business loans), entrepreneurial development (education, information, technical assistance & training), government contracting (federal procurement), and advocacy (voice for small business). For this article, we will focus on the first one, access to capital.
The SBA does not lend money directly to small business owners or churches. Instead, it secures loans from partnering lenders, community development organizations, and micro-lending institutions. If the borrower doesn’t repay the loan, the lender knows that the US government will repay the debt access to capital. By guaranteeing a portion of the loan, the SBA reduces the risk for lenders, making it safer for them to provide loans to small businesses.
Given the SBA’s mission to support small businesses, it may seem 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), which were part of the COVID-19 relief efforts. These programs were designed to provide financial assistance to see America through the pandemic.
Under the PPP, churches and other faith-based organizations could apply for loans to cover payroll costs, rent, utilities, and mortgage interest. The EIDL program provided low-interest loans to organizations that suffered economic injury due to the pandemic. These loans could be used to cover operating expenses and other costs the organization could have paid if the disaster had not occurred.
It’s important to note that the PPP program has ended, and the COVID-19 EIDL program has closed. However, churches may still be eligible for SBA disaster loans, which are provided to help businesses, private nonprofit organizations, homeowners, and renters recover from declared disasters. These loans can be used to repair or replace property damaged or destroyed in a declared disaster, including real estate, personal property, machinery, and equipment.
Let’s examine each SBA loan program, what they are used for, and in what situations a church can get an SBA loan.
The 7(a) loan is the Small Business Administration’s most common financing tool for small businesses. These loans can be used for various purposes, including working capital, refinancing current business debt, purchasing and installing machinery and equipment, and purchasing furniture, fixtures, and supplies. The 7(a) loan program is highly versatile and can be tailored to meet the specific needs of small businesses.
However, the situation is different regarding church eligibility for 7(a) loans. Traditionally, faith-based organizations, including churches, have been legally barred from receiving standard SBA loans, including those in the 7(a) category. The SBA’s eligibility requirements state that businesses must operate for profit to qualify for 7(a) loans, which excludes many non-profit organizations, including churches.
During the COVID-19 pandemic, the SBA made exceptions for faith-based organizations to receive certain types of SBA loans, such as the Paycheck Protection Program (PPP) and Economic Injury Disaster Loans (EIDL). These exceptions were made to provide financial assistance to organizations affected by the pandemic, regardless of their religious affiliation or non-profit status. However, the SBA’s eligibility requirements for 7(a) loans exclude non-profit organizations, including churches.
The SBA 504 loan program provides long-term, fixed-rate financing for significant fixed assets that promote business growth and job creation. These loans are available through Certified Development Companies (CDCs), registered nonprofits encouraging economic development within their communities.
The funds from a 504 loan can be used for various assets that promote business growth and job creation. These include the purchase or construction of existing buildings or facilities, long-term machinery, and equipment, or the improvement or modernization of land, streets, utilities, parking lots, and landscaping of existing facilities. However, 504 loans cannot be used for working capital or inventory, consolidating, repaying, or refinancing debt, speculation, or investment in rental real estate.
When it comes to church eligibility for 504 loans, the situation is clear. To be eligible for a 504 loan, a business must operate as a for-profit company in the United States or its possessions. This requirement excludes many non-profit organizations, including churches.
During the COVID-19 pandemic, the U.S. government introduced several relief programs to help businesses and organizations weather the economic impact of the crisis. Two main COVID-related loan programs were the Paycheck Protection Program (PPP) and the Economic Injury Disaster Loan Program (EIDL).
The PPP was designed to provide a direct incentive for small businesses, including faith-based organizations, to keep their workers on the payroll during the COVID-19 crisis. The program offered forgivable loans to cover payroll costs, rent, utilities, and mortgage interest. The EIDL program provided economic relief to small businesses and non-profit organizations experiencing a temporary revenue loss due to COVID-19. The loans could be used to cover operating expenses and other costs the organization could have paid if the disaster had not occurred.
Churches did qualify for some COVID relief loans, notably the PPP and EIDL programs. The SBA issued guidance that faith-based organizations, including churches, were generally eligible to receive the PPP and EIDL loans under the CARES Act. 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.
However, it’s important to note that these loan programs are now closed so that no new applications can be made, including by churches.
In the event of a declared disaster, the Small Business Administration (SBA) provides low-interest disaster loans to businesses of all sizes, non-profit organizations, homeowners, and renters. These loans are designed to help organizations and individuals recover from the financial impact of a disaster by providing funds to repair or replace damaged or destroyed property.
SBA disaster loans can be used to repair or replace items damaged or destroyed in a declared disaster, including real estate, personal property, machinery and equipment, and inventory and business assets. The loans are intended to help organizations and individuals get back on their feet and resume their normal operations as quickly as possible.
As non-profit organizations, churches are eligible for both Physical Disaster Loans and Economic Injury Disaster Loans (EIDL) in the event of a declared disaster.
While the Small Business Administration offers various loan programs to support small businesses and non-profit organizations, not all SBA loans are accessible to churches due to specific eligibility criteria. As a result, churches often turn to other types of loans to meet their financing needs.
Churches often turn to traditional loans such as mortgages for purchasing property or refinancing existing loans. Mortgages are secured loans, meaning the property being purchased or refinanced serves as collateral for the loan. Churches commonly use this type of loan to acquire new land, buildings, or other real estate.
Construction loans are another common type of financing for churches, used to fund new buildings or significant renovations. These loans are typically short-term and are disbursed in stages as construction progresses. Once the construction is complete, the loan is usually converted into a long-term mortgage.
Churches can use equipment loans to finance the purchase of necessary equipment, from office supplies to sound systems. Church equipment loans are secured by the equipment being purchased, and the loan amount is typically based on the value of the equipment.
Churches may refinance their existing loans to take advantage of lower interest rates, reduce monthly payments, or consolidate multiple loans into one. Refinancing can help churches free up funds for other expenses or reduce the overall cost of borrowing. When refinancing, a church takes out a new loan to pay off the existing loan(s), and the new loan typically comes with more favorable terms. It’s essential for churches to carefully consider the costs and benefits of refinancing, including any prepayment penalties or fees associated with the new loan.
A line of credit is a flexible financing option allowing churches to access funds up to a predetermined limit as needed. Unlike a traditional loan, where the borrower receives a lump sum upfront, a line of credit allows churches to draw funds as needed and only pay interest on the amount used. This type of financing is beneficial for churches with fluctuating cash flow needs, such as seasonal expenses or unexpected repairs. A line of credit can be secured or unsecured, and the interest rates and terms vary depending on the lender and the church’s creditworthiness.
Churches may need to purchase vehicles for various purposes, such as transporting members to events, outreach programs, or mission trips. Church vehicle loans are a type of financing specifically designed for this purpose. The purchased vehicle typically secures these loans, and the loan amount is based on the vehicle’s value. Churches can use vehicle loans to finance the purchase of vans, buses, or other vehicles needed for their operations. As with any loan, it’s essential for churches to carefully consider the terms and interest rates before taking out a vehicle loan.
Whether the goal is to address immediate financial shortfalls or to reach larger objectives, financing can be a valuable tool for accelerating the church’s mission. But securing financing for a church requires careful planning and a clear understanding of the church’s financial objectives.
Understanding the church’s financial objectives is crucial for creating a successful plan for managing church funds. Short-term goals should focus on immediate needs like budgeting or generating revenue, while long-term goals should focus on more significant investments, such as purchasing property or creating endowments.
Financing can be used to address immediate financial shortfalls or to reach larger objectives. Fundraising, organizing church events, or applying for church loans are some ways to address potential shortfalls. Once you have identified that financing is the right tool for accelerating your ministry, you want to begin laying the groundwork for financing conversations with lenders.
This requires organizing financial affairs, including budgeting and encouraging regular donations. Formulating an accurate church budget is an integral part of managing its finances. A budget helps track where the money is going and maximizes church resources. Encouraging regular donations from church members can ensure a steady flow of income.
Once the church’s financial affairs are in order, the next step is to select a type of financing that aligns with the church’s goals and mission. This could include church mortgages or construction loans, equipment loans, or even a line of credit to establish a flexible safety net for the congregation.
Finding the right lender to approve your church at reasonable rates could mean applying to hundreds of nationwide lenders. This process can be overwhelming and time-consuming. Our team at Faith Based Funding handles this process for churches nationwide. Our job is to free up their time so church leaders focus on shepherding their flock, not reading the fine print in bank underwriting guidelines.
Once the right lender has been identified, the church can submit its application for financing. This will typically involve providing financial statements, budgets, and other documentation to demonstrate the church’s ability to repay the loan. After applying, the church must wait for approval from the lender. Our team at Faith Based Funding supports you throughout this entire process, from structuring your application to negotiating rates and terms.
Once the loan has been approved and the funds have been received, the church must use the funds for the intended purpose. This may involve purchasing property, undertaking construction or renovation projects, or covering operating expenses.
Securing financing for a church requires careful planning, a clear understanding of the church’s financial objectives, and a willingness to work with lenders to find the right financing solution. By following these steps, churches can secure the financing they need to accelerate their mission and achieve their goals.
Securing financing for a church can be a complex process, but with proper planning and guidance, church leaders can leverage financing to accelerate the church’s mission and ministry.
Along the journey, church loan consultants can help churches understand their options, evaluate the pros and cons of different strategies, and make informed decisions. By working with financial professionals, churches can ensure that they make the best choices for their congregation and mission.
Our team at Faith Based Funding specializes in providing loans for churches across America. Our lending solutions include church mortgages, refinancing, construction loans, equipment financing, vehicle loans, and lines of credit. Our mission is to support your congregation’s growth.
If your church is considering a loan, we’re here to support you every step of the way. Whether you want to purchase property, undertake a construction project, or refinance existing debt, we can help you find the right financing solution to accelerate your ministry.
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...
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,...
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