'What's Best For The Church?' Use a loan if for a relatively short period and if you can pay back the principal within the term of the loan.Church loans are usually made by some kind of commercial lender, a bank, credit union, denomination loan fund, or real estate investment trust (REIT). Here is an outline of the typical church loan structure:
- Fixed rate equal to Wall Street Journal Prime Rate +/- 1.00% at closing time
- 3-5 year term
- 15-20 year amortization
- 70-75% loan to real estate collateral value
- 1.20-1.25 times cash flow coverage
- 2.0-3.0 times the church's annual undesignated income
This typical structure is best for a church that can repay the loan within its term, in this example 3-5 years. When the loan term is up, the church will be faced with having to refinance any outstanding principal at the prevailing interest rate and to pay any new loan origination fees.
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