Church Financing & Loans


Church Bond Financing

For most churches and schools, the idea of obtaining financing through a bond issue is a new proposition. But it’s actually quite common and utilized by some of the larger churches nationwide, including Saddleback Community Church, Oasis Church and Hunter Street Baptist Church among others. When a church or school wishes to raise capital, it can retain an investment banking firm like Ziegler to underwrite bonds. Fees are paid to the firm, typically a percentage of the total amount of the bond issue. Then the firm sells the bonds to its clients, who in turn provide the needed capital in much the same way depositors of a bank provide capital for the bank to lend. And that’s it...simple, effective, and a great alternative to a conventional bank loan.

Bond financing options for churches and religious organizations

Ziegler offers two primary types of bond financing:

1. Taxable long-term fixed rate bonds

This is the structure most are familiar with as it relates to traditional church financing.  Ziegler can firm underwrite bond issues for needs from $1 million and higher. Learn more about how this structure works and may be a great fit for your ministry.

Long-term Security
Your organization never has to worry about refinancing a short-term bank note or rising interest rates. The low interest rate you’ve obtained through the bond issue is fixed for the entire 20 to 25-year term of the loan. For example, refinancing a short-term bank loan during a time of rising or high interest rates can mean higher mortgage payments. Since most nonprofit organizations spend all of the money they receive, the additional costs could mean cutbacks on needed programs and services. Some say that bonds are inflexible. That’s right, the rate you lock-in will never increase!

Reduce Your Risk
Because of the fixed rates provided with a Ziegler loan you eliminate a substantial portion of the risk associated with borrowing on a multi-million dollar project. For instance, if attendance and growth projections are not met, a bank may not be willing to refinance a short-term loan. Additionally, if interest rates have risen your organization is faced with an increased new mortgage payment that it can’t afford. With Ziegler your organization is not exposed to these risks and you know your total cost for financing. You have a fixed-rate, full-term loan, with no balloons.

Open-ended Mortgage
Is it possible that your organization will need to borrow additional funds for future phases of construction or additional projects? With traditional bank financing you would most likely have to refinance the original loan at the time of the second loan. This may involve additional fees, increased interest rates or prepayment penalties. Ziegler loans allow additional financing to simply be added on to the existing loan balance, without changing any of the terms of the original loan. Interest rates on the new money would reflect current market rates however. The standard loan documents for Ziegler financing contain provisions which allow qualified credits to issue additional bonds at a later date without having to refinance the original loan.

Greater Flexibility and More Control
It is important to read the fine print associated with any loan. Traditional bank loans may have loan covenants that do not fit your organization’s operational needs and can significantly affect future financial strategies and options. The loan covenants your organization must comply with under a Ziegler bond issue are generally more flexible than that of traditional bank financing. Unlike Ziegler, many traditional loan documents restrict the amount of money your organization can borrow or spend on additional capital projects. Some bank loans are set up with a longer term fixed rate, but require that all future building fund pledges be used to pay down the debt, thus really forcing you to have a short-term loan. Ziegler gives you total flexibility with the use of your building fund receipts. Use these monies to either pay down the loan, or for future projects that you decide on. Typically, permission from the lender is required to borrow or spend more than the set amount. This type of restriction can be limiting to a church and put its ability to grow in the hands of a third party. Ziegler leaves this control in the hands of your organization.

No Prepayment Penalties
Unlike Ziegler, many commercial banks do not allow you to refinance your loan unless you pay a prepayment penalty. These penalties are typically based on the potential lost profit to the bank for the remaining years that the loan would have been outstanding. These hidden costs can make it financially impossible to switch lenders or get out of the deal, especially if you are utilizing a SWAP contract to hedge against your loan rate. Ziegler financings do not carry any prepayment penalties or restrictions nor use SWAP’s or other derivative instruments.

What About Fees?
Some may say that bond financing is a “higher cost alternative” to traditional bank financing. Here’s what we say.
Bond financing does require your church to pay up-front loan fees, which are used to compensate the brokers who sell the bonds and the underwriter for the risk involved in purchasing the entire issue before bonds are sold. However, the fees for a bond issue do not have to be paid with cash at closing, and can be financed over the life of the loan. By paying a little more in the way of up-front costs, your church “purchases” more attractive loan terms described above.

The fees paid on a one-time basis for a bond issue provide for excellent stewardship if you add-up the potential future unknown and undisclosed costs on traditional bank financing. Cost factors that a bank will find impossible to quantify for you in their terms sheet include:

- What their rate on loan renewal might be (Ziegler bond issues are full-term, no renewals needed)

- What their fees for a loan renewal might look like (Ziegler underwriting costs incurred just once)

- Will your property appraise for enough down the road to meet unknown future loan-to-value (LTV) guidelines (With a full-term bond issue, no need to “requalify”

- Will your bank still have a commitment and focus to church lending (Ziegler has been financing churches 1913)

- Will your local branch or loan officer still be in place or swept away in the all too common bank merger game? (Ziegler has been an independent company since 1902)

Variable or Fixed Prepayment Penalties
These are hard to quantify and typically require you to pay the bank all of their lost future profit on a loan if you repay any or all of the loan early. If you decide you can’t get along with the bank, you have to pay this fee to refinance with another lender. Loan fees to renew the loan after construction or after the term expires With Ziegler, you can pay one fee for a full-term loan. No need to pay multiple fees to renew short-term loans as they come due.

2. Tax-Exempt Bond Financing

Some ministries will operate K-12 days schools or other community type facilities such a YMCA. These type of facilities are eligible for tax-exempt financing, whereby the bond interest paid by your organization is tax-exempt to the end investor. As a result, it is possible to obtain interest rates lower than traditional taxable bonds and certain forms of bank loans. Ziegler is a national expert in helping your ministry understand whether your specific project or loan refinancing can qualify for tax-exempt financing.

Learn more about tax-exempt bonds here.

Contact us today to learn more about the possibility of bond financing for your organization and for a free debt-capacity analysis!

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Church Loans

If you are seeking a traditional bank construction loan or mortgage, learn how we can help offer you more - for less. Some religious organizations have needs for a long-term and short-term financing component as part of the same loan. In concert with our commercial lending partners, we can structure a hybrid financing to meet your needs. This would involve a long term fixed-rate component with a short-term conventional bank component. These types of structures provide your organization with the best of both worlds.

Ziegler works with a number of commercial lending partners that can provide your organization with traditional commercial loans. These relationships also allow us to offer hybrid financing so you can hedge risk with the long-term bond component, yet have a potentially lower-cost, short-term commercial loan-borrowing component as well.


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Investing in Church Bonds

Churches and religious organizations that pursue bond financing through Ziegler can choose whether or not they make the bonds available to their congregation as an investment opportunity. We can offer this choice because we have investors ready to buy or we can educate your church members about bond investing – it’s really up to your church leadership. There is no requirement for your membership to invest in the bonds that Ziegler might underwriter for your project.

When church members invest, the church benefits financially because our underwriting fees are reduced. Plus, a portion of the interest the church pays goes back to its members. All in all, it’s great way for members to invest in their church if the leadership so chooses.  We’ve put together the following informational piece to help your congregation decide whether or not you should offer bonds for sale to members. Click here.



For Church Mortgage Brokers

If you’re a mortgage loan broker or financial consultant seeking financing for one of your clients, welcome to Ziegler. With shared mutual interest, Ziegler can work with you to help your clients achieve their objectives. Because of the high-volume of applications, we have established a few parameters that will help facilitate our discussions:

Loan Package Requirements
We ask that you submit a loan package as part of your initial inquiry. This will enable us to more efficiently determine the suitability of our financing programs for your client (generally we are not able to effectively handle general phone inquiries until after we receive a package). Of course, this is done within the strictest of confidence.

Your Loan Package should include:

  • Name of the organization
  • Brief description and history of the organization
  • Brief summary of the purpose of the financing request
  • The total dollar amount of the request, keeping in mind that debt consolidation/refinancing could be part of the whole package
  • Three years of financial information
  • Your contact information

Because of the volume of inquiries we receive, we may not be able to answer specific questions for you in advance of submitting a package.

Mortgage Broker Fee Policy
Mortgage brokers working with Ziegler may be able to earn up to a maximum of one-point for their services assuming successful closing of a transaction. However, please note that any such fee is payable by the borrower client to the broker. The fee is not payable by Ziegler, but may be paid from your clients loan proceeds at closing, and of course must be disclosed to the borrower. We ask that you have a written agreement with your client as to what fee you will be paid, prior to Ziegler underwriting any proposed transaction.

As a general rule, Ziegler does not work with mortgage brokers that charge more than one-point nor brokers who charge non-refundable points that are paid regardless of whether or not a transaction is successfully closed. Unfortunately, we have limited resources and we are not able to assist brokers with loan packages of less than $1.5 million.


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