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Church Bond Offering May Help Finance Your Construction
Church bond offerings are somewhat similar to
conventional church
loans in that church bond program can help provide money for your
building program. The primary difference in bond
programs, as opposed to conventional church financing, is
that with a conventional church loan, you borrow the money from
one lender. With bonds, you borrow the money from a
number of lenders...those who buy your church bond offering.
Church bonds may be a good fit
for one church and not another. Generally speaking, a
church bond
offering is more expensive to the church than a
conventional loan. While
the interest rate may be lower on a church bond offering, there
are significant expenses in a bond offering, (especially a
public bond offering) that drive up the effective interest rate
of the church bond offering.
Conventional loans may have a 1%
fee for closing costs. A bond offering may have fees that
are 10-13% or more. When you amortize the higher up-front
cost of the bond offering over 20 years of the note, it may only
raise the effective interest rate (the declared interest rate
plus the cost of doing the offering amortized over the life of
the bond offering) around 1/2%. If the bond offering is
1.5% lower than competitive loans this is still apparently a
good deal. The catch comes in when you want to pay the
bond offering off quicker than the full term of the notes.
While there should be no pre-payment penalty for early payoff,
the effective interest rate will be much higher because you are
now amortizing the up-front fees over a much shorter period of
time. This, in turn, raises the effective interest rate.
For example: If the church purposes to pay off their bond
in 7 years instead of 20, the closing costs are only amortized
over 7 years, which may add somewhere around 3-4% to the
declared interest rate, making the effective interest
rate higher than conventional financing.
This said, a church
bond program is probably better fit for churches that are not
going to be aggressive about paying out of the bonds early.
They may also be appropriate for churches that can get more
financing through a church bond offering than they can with
conventional lenders. Church bonds may be able to provide
more church construction financing than a conventional loan as
many church bond offerings have slightly more generous
underwriting criteria.
Private bond offerings, those sold
within the congregation as opposed to public offerings, have
lower up-front costs associated with them. If your members have significant capital in existing mutual funds or
retirement accounts, the private offering may be a wonderful way
for those to safely use money sitting retirement accounts to
help fund your church bond program, while earning a good return.
A church bond program, however, should not take the place of a
capital stewardship
campaign. One is an investment, the other an offering
to God.
Download
Preparing to Build for a side by side comparison of
loans and bonds - the answers may surprise you.
Find out how a lower interest rate can cost your church
thousands of dollars more in its church loan. |
Church
Building Guide
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Written by an experienced church
building consultant,
Preparing to Build provides
your church valuable, real-world insight based on real-world experiences and
input from hundreds of church building projects.
"Preparing to Build was an
incredible value - just a wealth of
information. The truth & his experience
jump off the pages."
Dwight VanDaveer, Engineer & Church Building Committee Member
With over 160 information packed pages, this
book will explain the process of building and how equip the saints for the
work of building the church in an effective manner that will reduce the
church's cost, risk and effort.
Click for more information or to purchase. |
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