By John Berardino
Megachurches are usually defined as having 2,000 members or more, but when it comes to financing, a mega loan is defined as a loan amount of $5 million or greater regardless of church size.
When it comes to financing, there is a limited number of lenders who are willing to make church loans – for megachurches it is even tougher. Other issues to consider:
- Banks and credit unions are generally going to require that the megachurch move its banking relationship to them if they are providing the loan.
- A megachurch is expected to have financials that are at a minimum CPA-compiled.
- Any issues related to prior or current loan payments be addressed with a plausible solution.
- A megachurch should be able to explain declining membership or income trends.
Our firm once closed a $13-million loan for a megachurch in Philadelphia. They had been to every lender they could talk to and had been declined. The church was frustrated and looking for a solution when they found us.
Earlier, the church was working with a national bank’s religious lending department and the loan was close to being approved. The church told us that before the bank would issue a formal commitment, they wanted the church to change the structure of their board of trustees and their bylaws to conform to their standards.
The church was not happy about this request, but according to the bank this was not negotiable. The church came to us to get a loan, and about five months later they closed and the church broke ground on their new state-of-the-art sanctuary.
There are things churches could learn from this story: (1) Traditional bank lenders on large loans will often want to have a say in how the church is managed and who can make decisions. If this does not work for your church look for other options. (2) Just because you have been turned down for your loan does not mean that your loan cannot be done.
It is important to recognize that lenders make decisions based on many factors unrelated to the church and some of these are out of the control of the lender, for example:
Concentration issues – Many banks and credit unions have internal and external restrictions on how much money they can lend on a particular asset class. If the bank has reached its concentration on church loans, they simply are unable to make a loan.
Legal and internal lending limits – Legal lending limits on a single loan are set based on asset size of the institution. But, generally, banks and credit unions have their own internal policies that are more restrictive than those set by law, so even though they may legally be able to make a large loan, they may have internal policies that prohibit a large loan.
Reputation risk – The risk that a loan will go bad and that the lender will have to take back the property and there will be a long protracted battle, which will be in the local newspapers and other media. I once worked at a bank that had made a $3-million loan to a large church. The church never made a single payment.
This is called a first payment default and almost always means fraud. At the end of the day, the bank decided to write off the entire $3-million loan instead of foreclosing on the church because the bank was afraid it would be crucified in the media for going after a church.
Although it is still difficult for many churches to borrow the money they need, it is not impossible if they know where to go, are well-managed and with a plan that makes sense.
John Berardino is president of Griffin Capital Funding in Fredericksburg, VA. www.churchloan.net