Since the early 1900s, literally thousands of church leaders have chosen to issue bonds for the purpose of financing new construction, expanding existing facilities, refinancing an existing debt, or for major capital purposes.

Frequently Asked Questions

What is a church bond?

A church bond is a certificate of indebtedness (I.O.U), or note, given as evidence of a debt. The church is the borrower, and the bond purchaser is the lender. Investors who buy bonds are lending money to the church for a specific time at a specific rate of interest. When the bond ends, or “matures”, at the specified prearranged date, the bonds are designed to pay investors the full amount of money they originally loaned the church, plus interest. Bonds usually are secured by a mortgage on the church property. In other words, the church property is pledged as collateral for the loan so that if anything happens and the church is unable to make its debt payments, investors have some protection against losing their investments.


What kind of bonds are available?

Investors usually have the option of investing in two types of bonds issued by a church: simple-interest bonds and compound-interest bonds.

  • Simple-interest bonds periodically pay the interest to investors. For example, an investor would expect to receive an interest check every six months or every year.
  • With compound-interest bonds, the interest accumulates and is paid back to the investor, along with the principal, when the bond matures.


Is this a security?

Yes, church bonds are considered a security and are thus regulated by state security agencies, which review the bond offering to make sure it meets certain guidelines. Each bond offering should meet the most thorough qualification standards designed, first and foremost, to safeguard investors’ interest. Churches are required to obtain liability, title and casualty insurance on the church facility for the duration of the bond issue.


What are the qualifications for a bond program?

For a church to issue bonds, it must meet several qualifying factors:

  • Financials – The church must disclose its income and expense reports to make sure it has the available income to handle debt service. Usually, it’s a good idea for the church to have an accountant – usually a certified public accountant – put together income/expense statements and balance sheets for up to three years.
  • With bond financing, a church can usually qualify to borrow up to three times its unrestricted income. “Unrestricted income” is income that’s not designated for a specific purpose – i.e., missions offerings or birthday gifts.
  • The church must ascertain the value of the property it’s pledging for collateral. Most companies that work with church bonds will require that the church obtain an appraisal from either a MAI or state-certified appraiser.
  • Additionally, the church will probably be required to have an attorney review its Articles of Incorporation, Constitution and by-laws and other legal documents to make sure all are in proper order.


What if a church needs additional financing later?

Then it can qualify for that extra money. Usually, leaders will have the option of either refinancing the entire amount or simply issuing additional bonds at prevailing interest rates for the needed funds.


How are interest rates determined?

The church usually engages the services of an underwriting company to advise on these matters. Interest rates will be determined by prevailing interest rates at the time of issue and will be dependent upon risk factors such as the church’s ability to repay the debt.


Can church members buy bonds?

Yes. Usually the church will make the bonds available to members first, and then – if additional bonds are available – to the public. In the latter case, an additional fee usually is charged to the church.


What costs will the church incur in a bond program?

Usually, both underwriting fees and sales commissions for the underwriting company are incurred. Additionally, the church will probably incur expenses for preparation of the financials, appraisal fees, legal fees and title insurance. The underwriting company should provide a complete breakdown of all anticipated fees before the program is done.


Are there other benefits?

Perhaps the greatest benefit of financing with church bonds is the spiritual or biblical benefit.


Some believe that the money to build God’s house should come from God’s people. They point out that when Moses was putting together the material to build the tabernacle, the offerings of materials came from God’s people. Many believe that in today’s world, the money to build “God’s house” should come from “God’s people,” and that the interest paid by the church should benefit “God’s people.” Bonds offer fixed-rate financing for up to 20 years, and God’s people will benefit from the interest paid. I suggest that any church leader considering long-term financing contact a reputable Christian investment-banking company to see if church bonds are the right fit.


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