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To Borrow Money, or Not, from Church Members

Should congregations borrow money from their own members for capital improvement projects? It’s an option that some congregations have used, but it’s not without pitfalls. “There are all sorts of reasons why it’s not a good idea,” said Wayne Clark, the Unitarian Universalist Association’s (UUA’s) Director of Congregational Fundraising Services. “For one thing, it changes the relationship between the member and the church. It’s no longer a spiritual relationship, it’s a financial relationship as well.”

Clark knows of one congregation that sold $600,000 in bonds to members 20 years ago. “Since then they’ve never had money to pay off the bonds so as they come due they are resold to other members. It’s really just a revolving account in which there is never any cash to spend or invest.”

Some congregations borrow from members, he said, with the expectation that some bondholders will forgive their loans when they come due. “When that happens, you are not dealing in good faith with members. Also, if a bondholder should need money early for an emergency, the congregation has two unattractive choices, to either return the money or face an unhappy parishioner.”

Orange Coast Unitarian Universalist (UU) Church in Costa Mesa, CA (239 members), had a good experience with such loans. It used member financing for a building program in the 1980s. It had $200,000 in member loans, with one member holding half that amount and the remainder in $10,000 notes.

The notes were issued at slightly less than market rate. “We had more interest in these notes than we had notes available,” said former board member Tom Loughrey. “All in all it has been successful for the church and a good investment for the note holders.”

A Midwestern church, anonymous for this article, borrowed $206,000 from members to complete a building project in the early 1990s. About $80,000 has been donated back to the church and the church paid off $20,000. Many of the bonds were resold to other members when they came due because the church could not pay them. Last year the congregation finally managed to create a bond redemption fund totaling one-fifth of the balance, with a plan to pay off the total amount over five years.

“It was stressful for us,” said a former treasurer. “We lived with the fear that people would ask for their money and we wouldn’t have it.” But she noted that the loans helped finish off a religious education space, and now the church is growing.

Peter Henrickson, a UU from Vancouver, WA, and author of the self-published book Financial Management in the Church, believes that borrowing from members can be a good option. “It’s just not going to happen that churches will always be able to raise all they need through a capital campaign. Borrowing from members can be a good thing, if done smartly. Banks often consider churches poor risks.”

That might have been right at one time, but not now, says Clark. “Qualifying churches almost always find local financing, often from a bank that has community outreach as a part of its mission. In the rare case that a qualifying congregation can’t find local financing, or they find it but the UUA offers a slightly better interest rate, we are always able to give them a building loan.” UUA building loan details can be found at Building Loan, Loan Guarantee, and Grant Programs.

Henrickson suggests that borrowing money from members can deepen the relationship between the member and the congregation. If a loan is called early it needn’t be a crisis, says Henrickson. “It can be planned for.”

Says Clark, “Money should certainly be a part of the relationship between a congregant and the church. Generous stewardship is important. But the concept of being in the banking business is quite different and must be left to professionals. ”

About the Author

  • Donald E. Skinner was the founding editor of the InterConnections newsletter for congregational leaders and a senior editor of UU World from 1998 until his retirement in 2014. He is a member of the Shawnee Mission Unitarian Universalist Church in Lenexa, Kansas.

For more information contact interconnections@uua.org.

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