Refinancing can offer numerous benefits to a church, from reducing monthly repayments to freeing up cash for important ministry initiatives. However, the process involves considerable effort and an understanding of complex financial details, which can be daunting—and we get that!
At ACS Financial, we are church loan specialists. We know where churches are coming from because we often speak with church leaders about their financial concerns. We have come across some commonly overlooked aspects when considering refinancing options, which we will cover in this article.
What is refinancing?
Refinancing is the most common thing we discuss with Church Leaders. In simple terms, refinancing is the process a church goes through to revise and replace the terms of an existing loan agreement. This is typically done to secure a better interest rate, which can lower monthly payments, adjust the loan term, consolidate debts, or release equity from the property for additional funding. Churches might consider refinancing for several reasons, including:
- Lowering Costs: If interest rates have dropped since the original loan was secured, refinancing could reduce the overall cost of borrowing.
- Extending or Reducing the Loan Term: Depending on financial goals, a church might refinance to either extend the loan term, which can lower monthly payments, or shorten it, which can increase payments but reduce the total interest paid over time.
- Accessing Equity: If the church property has increased in market value, the difference between what the property is worth and what it is owing on the loan is called equity. Refinancing can possibly allow the church to access this equity to fund renovations, expansion projects, or other capital needs.
- Debt Consolidation: If a church has multiple loans or high-interest debts, refinancing can consolidate these into a single loan with a lower interest rate, simplifying finances and potentially reducing payment amounts.
Key Refinancing Requirements for Churches
How to Apply for a Loan
Many church leaders are unaware that there are specific core requirements that must be met before a bank will even consider their loan application. To qualify for loans, churches must satisfy several crucial criteria:
- Incorporation and Limited Status: Ensuring the church is properly incorporated or operated operating as an LTD. This legal status is essential for establishing creditworthiness and formal recognition.
- Trading History: At least two years of trading history to demonstrate financial stability and reliability.
- Congregation Size: A minimum of 70 congregants to show substantial community backing and ongoing financial support. This does not include minors.
- Financial Records: Maintain accurate financial records and undergo regular audits to ensure transparency and accountability.
These are your basic steps to take before applying for a loan, but don’t be discouraged if you are not there yet. We have had many clients go back to their board, implement the necessary changes and come to us 2-3 years down the line and we have been able to help them with their loan.
In fact, here is a case study from one of our clients who did just that:
Real-Life Case Study of Church Refinance
One of our church clients in Western Australia contacted ACS Financial concerned about their high loan interest rate. In 2023, they were being charged 8.10% on a $820,000 loan by their existing lender, which they found unusually high.
They were also dissatisfied with their banking relationship; they never heard from the bank relationship manager and found their feedback/service to church queries poor. Our analysis confirmed that the church’s financials were solid, proving that they could service the loan and provide sufficient security. This allowed us to negotiate a significantly lower interest rate on their behalf, ultimately freeing up more funds for their ministry activities.
The commercial lending team at ACS Financial, leveraging years of experience in bank negotiations, prepared an 18-page lending submission for the church. This document outlines a compelling case for better loan terms.
Our team went further by presenting this submission to various lenders and encouraging them to compete on pricing, fees, and terms. This negotiation process is time-sensitive and requires continuous communication, but our team managed these details, alleviating the church of this burden.
After securing the right deal, our team also handled the settlement process, ensuring all finer details were addressed. Throughout the refinancing process, our client in Western Australia was kept fully informed of all developments.
Ultimately, we secured a 15-year loan at an improved rate of 6.99%, with monthly principal and interest repayments. This achievement translates into an annual savings of $9,102 in interest for the church—a significant financial relief that supports their mission.
Final thoughts when it comes to refinancing
Church leaders often feel overwhelmed and disheartened by the financial challenges that come with running a church. With the right knowledge and strategies, you can secure the financial health of your church. By embracing these practices, you can lead your congregation toward growth and stability, ensuring your church makes a lasting impact in the community.
A Note on Personalised Advice
While this article provides an overview, it is not an exhaustive list of do’s and don’ts. Each church’s situation is unique, and we strongly encourage you to contact our experts at ACS Financial on 1800 646 777.
Our team will take the time to understand your specific needs, helping you make the most informed decisions.
ACS Financial has provided expert insurance advice and tailored insurance solutions across Australia for 30 years. Our team of insurance experts have access to a broad range of products that will protect your activities, allowing your investment or business to grow and flourish.
Contact our team today!