Most churches in California struggle to obtain church financing from traditional banks. Unlike standard commercial borrowers, churches rely on donations rather than guaranteed revenue, making them a higher risk for institutional lenders. This guide explains the church financing options available in California, including secured loans, bridge loans, lines of credit, unsecured loans, seller financing, church bonds, and endowment funding — and what your church needs to know before applying.
Some churches belong to large denominations with access to funds lent through foundations, endowments, or other funding sources. Regardless of membership, most churches find church financing extremely difficult to obtain from standard banking institutions — largely because banks consider a church loan too risky when it’s based solely on stated income or the equity in real property, if any exists.
Who’s Not Part of This Church Financing Discussion
Private mortgage companies, or hard money lenders, aren’t part of this discussion. Much of what follows applies to lending generally, but these lenders operate as a secondary or alternative market. They aren’t regulated the same way as conventional institutional lenders, which — precisely because of that lighter regulation — can make them a real alternative for some church financing needs.
Church bonds are another source of funding entirely, but a different kind of instrument and topic. Bond funding isn’t a common avenue for most of today’s religious communities, so it’s not covered in this article.
Standard and Institutional Lenders for Church Financing
Most institutional lenders — national or state-chartered banks — rarely take the time to understand a nonprofit’s repayment income, let alone a church’s. The basic problem: a church has no way to guarantee regularly scheduled or calculated income, only a track record of past donations and, possibly, third-party long-term rental income. Institutional lenders also often fear the negative publicity that can come with foreclosing on a church or other religious organization.
Types of Church Financing
Church financing generally falls into a handful of categories, each with real tradeoffs for a congregation:
- Bridge Loans — short-term financing that closes a gap, such as covering a down payment on a new property before it’s rolled into the secured loan covering the balance. A church seeking a bridge loan should expect the lender to require some form of security, assignment, or acceptable pledge.
- Line of Credit — a revolving loan with a maximum withdrawal amount and a minimum payment, similar to a credit card. As with bridge loans, lenders typically require security, assignment, or an acceptable pledge from a church.
- Unsecured Loans — financing based solely on the borrower’s creditworthiness, without collateral. Since a church has no credit rating, this kind of loan would be based entirely on stated income — realistically, an unsecured loan should be treated as probably unobtainable for a church.
- Secured Loans — financing backed by the equity in an asset used as collateral; if the borrower defaults, the lender can take title or possession of that collateral. This is the standard loan type for church financing, though usually structured quite differently from a typical residential or other commercial loan. Encumbering church property to secure this kind of church financing with a mortgage or deed of trust generally only requires board approval, not a congregational vote — under Corporations Code §9631, member approval isn’t required to approve a mortgage, deed of trust, or other hypothecation of corporate property to secure a loan, unless the articles or bylaws say otherwise. That’s a different, less demanding rule than what applies to selling substantially all of a church’s assets outright.
How Church Financing Actually Works
In theory, a loan is simple enough — the application process is often the easiest part. Understanding the terms should make you an informed borrower and help ensure you’re acting in your church’s best interest. Generally, your monthly payment stays fixed for a period of time. Each month, the payment first covers interest accrued that month, with the remainder reducing principal. If the loan is fully amortized, payments are weighted heavily toward interest early on and shift toward principal as the loan matures. At the end of the term, the loan is paid in full.
Some loans aren’t fully amortized, leaving a large balloon payment due at the end of the term.
- Principal — the total amount borrowed.
- Interest — your cost of borrowing; how it’s computed and applied often matters more than the rate itself. Annual Percentage Rate (APR) reflects the true first-year cost, including fees.
- Closing Costs — application, brokerage, recording, notary, appraisal, and insurance fees, among others.
- Equity — the difference between a property’s market value and what’s still owed on it.
Adjustable Rate Mortgage
An adjustable rate mortgage’s interest rate fluctuates over the loan’s life, tied to the broader interest rate market — as rates rise, so does your payment. A lower initial payment is possible, but you take on the risk of rates rising beyond what you can afford. Most adjustable loans have a set interest review period, and some include rate “caps” limiting how much the rate can move in either direction, or time caps preventing any increase for a set period, such as the first five years.
Fixed Rate Mortgage
The interest rate and monthly payment stay fixed for the entire loan term, giving both lender and borrower a predictable payment schedule — unlike an adjustable rate loan, where payments fluctuate with the market.
Interest-Only Mortgage
An adjustable-rate loan allowing the borrower to pay only interest for the first few years, or the full term. These loans carry a lower initial monthly payment than a conventional loan, and any extra payment made during the interest-only period goes directly against principal, potentially paying the loan off faster. The caution: unless payments actually go toward principal, no equity accrues — if the property is later sold, or used as collateral for additional financing, there may be little or no equity left, especially after the costs of selling.
Seller Financing for Church Property
Rather than seeking church financing from an institution, the current property owner lends all or part of the funds needed for the purchase. No funds actually change hands between a third party and the church — the buyer and seller negotiate mutually agreeable loan terms, and the buyer gives the seller a promissory note instead of a bank.
Though uncommon in California, the parties can use a Land Contract, similar to an auto loan: the seller retains legal title until the loan is paid in full, while the buyer holds equitable title. Once paid off, the buyer obtains legal title, usually via a Grant Deed. The drawback falls on the seller, who has no power of sale and must obtain a court order to foreclose if the buyer defaults.
More commonly, seller-financed sales in California use a Deed of Trust (often called a mortgage). As with institutional financing, the buyer obtains title through a Grant Deed but sends monthly payments to the seller instead of a bank. The seller doesn’t actually advance the principal — instead, the seller extends credit to the buyer and collects principal and interest each month. Because it’s a deed of trust rather than a land contract, the seller retains the power of sale — the right to foreclose non-judicially under Civil Code §2924 if the buyer defaults, without the court order a land contract would require.
Reconveyance and Clouds on Title
A Reconveyance is recorded in the county where the property sits, usually by the lender, acknowledging that the collateral has been released because the loan is paid in full. If a reconveyance is never recorded — by either lender or borrower — the old lien can still appear on title even though the loan was repaid, creating what’s known as a cloud on title.
A cloud on title is any document, claim, unreleased lien, or encumbrance that might invalidate or impair title to real property, infringing on the owner’s ability to transfer the property or obtain future loans.
Conclusion
Lenders are in the business of making money, not giving it away. Loan packages are built to entice the borrower, dressed up with favorable-sounding terms. Before signing on to any church financing arrangement, understand the total cost over its entire life, not just the monthly or yearly figure.
Related Articles
Church Officer and Director Liability
Holding Title to Real Property
Clouds on Title: 5 Ways They Threaten a Sale
Why Use Bushore Real Estate
Are you a loan originator or mortgage broker?
No. Bushore Church Real Estate is not a loan originator, mortgage broker, or lender. We are a church real estate brokerage and legal services firm.
Can a church get a loan from a bank?
Most traditional banks won’t offer church financing because church income is based on donations rather than guaranteed revenue. Some community banks, credit unions, and specialized church lenders do offer church loans.
What do churches need to qualify for a loan?
Lenders typically require 2-3 years of financial statements showing consistent donation income, a clear organizational structure, property appraisal documentation, and a strong leadership team. The property itself usually serves as collateral.
Disclaimer: Every situation is different and particular facts may vary thereby changing or altering a possible course of action or conclusion. The information contained herein is intended to be general in nature as laws vary between federal, state, counties, and municipalities and therefore may not apply to any given matter. This information is not intended to be legal advice or relied upon as a legal opinion, course of action, accounting, tax or other professional service. You should consult the proper legal or professional advisor knowledgeable in the area that pertains to your particular situation.
