The Church Loan Application
In order to make the first step of pre-qualifying for the church loan, the application has to be carefully filled out, and state the purpose of the loans, such as: acquisition, refinance, relocation, renovation, onsite expansion; roughly estimated funding amount; general demonstration and description of the initial and long term building phases. It should also contain a brief history of the church, including: the year founded; denominational ties, if any; schedule of services; ministries and outreach services; average worship attendance; personnel data, with brief senior staff biographies; and any prior construction and debt experience.
The church has to also provide a detailed description of their existing facilities, and internally generated financial statements covering the last three to five years, plus an interim balance sheet and income and expense statement that’s less than 60 days old.
The lender might require some additional information before giving final loan approval. The information can be sufficient for the lender to issue a term sheet or a “preliminary expression of interest” letter.
Church Loan Pricing
In order to secure the church loan amount and terms, it is necessary to study and review the cost of the project, as well as other expenses that may arrive in the future. This will help the church to eliminate unforeseen and costly surprises down the row. The original fee may be applied, and defined as a percentage of the total loan amount. The indication interest rate for the church loan that is normally quoted in the beginning of the loan process may not be the same at the closing time. You can expect about a month, after the term sheet is issued and before the closing date. It is essential to asseverate that your lender provides a quote for the interest rate that is incorporated in to the published index. This step will allow you to audit the rate activity, and avoid discrepancy at the closing time.
The term sheet or offer letter should indicate which index is applied; whether it is e N.Y. Prime Rate, specific U.S. Treasury Notes, or other indexes which are published daily on the Federal Reserve website. You want to stay away from the lenders who use unpublished indexes. If you have a fixed rate loan, you need to know the factors that will be applied to set variable rate and adjustable rate loans.
The swap agreements, can the aptitude of the high prepayment penalties, and are very inflexible. The church will not be able to change the amortization schedule of the loan or prepay the loan, in full or in part, without altering the contract. Such modifications can result in substantial termination or prepayment penalty costs. These contracts are often immediately sold to third party financial institutions, your lender will not have any discretionary latitude over the collection of such penalties.
Get an expert before signing any documents to help you understand the process, and avoid costly mistakes.
Terms and Conditions
Other then the interest rate considerations, the lender may set forth additional costs to your project. It may include performance bonds, appraisal fees, prepayment penalties and compensating balance requirements. The lender can decide to oversee the whole project operation; and require the church to conserve a specific financial predicament. The lender can request limits on the capital spending and newly accruing debt with out written approval.
The church loan process should be done through the bank who has an extensive experience in dealing wit churches and other non-profit organizations; and can potentially become a source for you throughout the life of your project.