Funding The Local Church: Borrowing For Building With Bonds

Joseph R. Miller

(No church project I have been involved with has failed when the church followed my conservative guidelines.) Now state and federal regulations have added more registry controls that further safeguard the churches and the investors.

Why do churches borrow with bonds for building?
a. Long-term fixed interest rates are possible with bonds, while most banks offer variable or adjustable rates with balloon balances. The fixed interest rate removes the uncertainty of having to refinance at a higher rate of interest and additional fees when the balloon comes due.

b. Bonds provide the opportunity for members to earn a higher return on their
investments than banks pay on certificates of deposit. To the extent that
bonds are purchased by the membership of the church, the interest is retained
by the church members.

c. A graduated payment schedule is an option. The loan payment can begin low
and increase as church membership and giving increase. But the graduated
payment schedule would pay all interest and principal within the specified
period for loan maturity without a balloon.

d. There is an open-ended deed of trust for future expansion loans. Unlike
most conventional loans, if interest rates go up in the future and additional
borrowing is needed, refinancing lower interest loans is not required.

e. The need for a construction loan is eliminated. Bond proceeds serve as both
the construction loan and permanent loan.

f. The membership can participate in the church`s loan—another encouragement
to commitment, service, awareness of the church`s stewardship needs, and unity
of the church body.

What types of bonds are utilized?
a. Simple interest bonds provide income to the investor
at stated intervals until bond maturity.

b. Compound interest bonds produce growth for the investor to maturity.

What other features are true of church bonds?
a. Registered. The securities agency procures all required federal and state registry of the bond issue.

b. Security. The bonds are secured by a first mortgage, general mortgage, or
general obligation.

c. Negotiable. The investor may sell his holdings prior to maturity.

d. Collateral. Most banks will honor the bonds as loan collateral.

e. Callable. The church may redeem the bonds prior to maturity for prepayment.

f. Increments. Bonds are usually sold in increments of $250, giving nearly
everyone the opportunity to participate.

g. Individual Retirement Accounts can now be funded with church bonds. Present
IRAs can be transferred into a self-directed IRA that will allow the owner to
choose how his money is invested to maximize the return on IRA contributions.

What is a typical procedure for a fully directed bond program?
a. The congregation votes to engage a consultant and firm
for the program.

b. The church bond committee meets with the company consultant to plan and
organize.

c. The consultant works with the paying agent, trustee, registrar, transfer
agent, escrow agent, church attorney, church trustees, and other church
personnel.

d. General publicity begins.

e. The bond firm conducts an IRA/bond information seminar at the church.

f. Information/instruction letters are sent to selected personnel.

g. A pictorial announcement brochure is printed and provided to each church
family.

h. Bond sales “kick off” Sunday includes training for selected church bond
counsellors who will participate in the “best efforts” marketing.

i. The formal sale of the bonds begins under the full-time direction of the
consultant.

j. Victory Sunday is announced. Any unsold bonds may be brokered outside the sphere of church contacts.