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Church Loans Newsletter
Church Bonds Versus Church Loans
Newsletter
I am often asked to compare a church bond to a traditional loan for a church. I will start out by explaining how bonds work and how their fees differ from a traditional loan and the advantages and disadvantages of each.
Church bonds are generally a fixed interest rate debt instrument used to facilitate the financing of a real estate transaction for any purpose from construction, refinance, purchase and rehab. The bonds are sold to investors looking for a fixed return for a specified period of time. Church bonds generally have a fixed interest rate for the entire term and do not generally have a pre-payment penalty. They do not require personal guarantees and the money can be used for almost any purpose.
Before you get excited and call me for one of our bond programs you need to understand how this differs from a loan.
The big claim to fame that most bond companies try to tell you is that you can not get a long term fixed rate LOAN with no balloon. This may be true when you are talking about what most banks offer but not all Church financing programs are the same. We offer both fully fixed term loans and bonds. The rates are about the same but the fees for a bond are much higher and the time to close is generally much longer for a bond. So why choose a bond over a loan? A bond is a good instrument to use in a couple of situations. Provided you have audited financials a bond can be more creative than a loan in certain situations. For instance there are occasions where a bond will use the promise of future pledges to qualify a church for a loan today. The bond has the flexibilty to defer part of that payment to a later date when those pledges will be recieved. Loans have a great deal of difficulty being this creative. Bonds may be more relaxed regarding credit and still give you good rates and terms. We have a bond and loan program for churches that have had issues with credit in the past. The difference is that with the bond program you can still get long term fixed rates with no balloon with not so great credit; the loan only has fixed rates for up to 5 years and the rates are higher. Again, the bond is going to cost you more in points but here is a situation where a bond may be better than a loan.
Paperwork for a bond versus a loan:
Church bonds generally require that you have audited financials and even for our program you have to have them for at least the most recent year and sometimes for the prior 3 years. For our loan programs it is almost never required to have audited financials and sometimes we do not even need an appraisal for our loan program.
Why is there so much difference between a bond and a loan?
A bond is an investment that is sold to people like you and me and as such is generally regulated by the Securities and Exchange Commission (SEC) and as such bonds have rules and regulations they must adhear to on the federal and the state level. A loan however is not regulated by the SEC and the underwriter has flexibilty determined by the company he/she works for and not by the SEC.
To Summarize:
There are few instances when financing churches with a bond is better than a loan based on the costs associated with obtaining a bond, the general time it takes to fund as well as the need for audited financials but there are some.
If you are unsure of which way you should go, apply online at www.churchloans.info and one of our consultants will call you back to discuss your options. Also, you may call toll free and speak directly with a consultant at 800-710-6762