This business finance article will provide an overview of four primary church loan obstacles.

(1) Church Loan Obstacle Number One: Churches are usually extremely unique. Because of this, typical commercial lenders are concerned that if commercial mortgage payments are not maintained, it will be difficult to sell the property due to unique property aspects.

(2) Church Loan Financing Barrier Number Two: Business lenders often request private guarantors for church loan financing, and this is not appropriate for church loans. The legal and financial structure of churches simply does not work with a traditional lender/guarantor requirement. Most business lenders will not accept the lack of private guarantors due to the earlier point about challenges involved in reselling the church property.

It is not unusual to have a church loan that has been finalized only after several church members have given a private guarantee for church loan financing. The normal request for private guarantors acts as a major difficulty because there might not be individuals who have the necessary net worth to provide a private guarantee for large church loan financing requirements and because church members might prefer not to act in this capacity even if they are financially capable of doing so.

(3) Church Financing Difficulty Number Three: When church financing is obtained, there are frequently unacceptable business finance terms such as very small loans, low loan-to-value (LTV) of 50% to 60%, short-term loans and high interest rates. These onerous terms are tantamount to the church loan being declined, and if the terms are accepted, the church is likely to experience continuing financial difficulties due to unrealistic commercial mortgage requirements.

(4) Church Financing Difficulty Number Four: Construction, renovation and land acquisition are even more difficult for churches to finance than purchases or refinancing. As a result, needed repairs are often postponed indefinitely and new churches frequently take many years to become a reality.

There are practical church financing commercial mortgage solutions for the church loan issues described above.

Copyright 1995-2008 AEX Commercial Financing Group and Stephen Bush. All Rights Reserved.

A Stated Income business loan is quite different from a traditional business loan. Very few traditional banks use Stated Income (no tax returns and no income verification) for a commercial mortgage. Most commercial lenders will perform a thorough income verification as part of their underwriting process. This will typically include copies of tax returns as well as a requirement to sign IRS Form 4506 which authorizes the lender to obtain tax returns directly from the IRS.

IRS Form 4506 is routinely required by most traditional banks and many other commercial lenders. Some lenders require this form in addition to current tax returns. The more devious use of this form is when lenders make a point of not requiring tax returns but separately ask the commercial borrower to sign this form. The most common explanation in asking for this form will involve the words "routine request". This will usually occur just before the final closing and be further characterized as "one final small detail". In reality IRS Form 4506 is neither "routine" nor a "small detail". The use of this form is a lending practice that can have a potentially detrimental impact on a commercial borrower's financial interests.

The value of using Stated Income does not end when the commercial loan closes. Many/most traditional banks require income verification/audits even after the commercial real estate loan closes. Most commercial borrowers won't believe this until it happens, but some commercial loans will have covenants stipulating that the lender must receive financial data even after the loan closing and that the loan can be recalled if the audit of this data is not satisfactory to the lender.

We have prepared a Special Report entitled "The Top 5 Reasons that Banks Decline Business Loan Applications and the Top 5 Strategies for Converting a Declined Loan into an Approved Loan". REASON NUMBER 1: Loan underwriters find something on a tax return that disqualifies a borrower under the bank's lending guidelines. This "something" will frequently be insufficient net income, but when loan underwriters look at tax returns, there are many other possibilities which produce a similar result. If the commercial borrower is applying for a Stated Income Business Loan, this situation will NEVER occur because tax returns will not be included in the commercial loan underwriting process.

Copyright 1995-2008 AEX Commercial Financing Group and Stephen Bush. All Rights Reserved.