Can the church borrow from a restricted fund?
Can the church borrow from a restricted fund?

If a church has a restricted fund, such as a building fund, can the church borrow from the fund for an unrelated purpose as long as it is made clear that the money will be repaid?

In most states, borrowing from a donor restricted account is prohibited. In some states it is considered theft (a criminal offense), even with a formal promissory note. In some states, it is considered a breach of fiduciary duty by those who approved the loan. And in some states, it is considered a violation of the deceptive trade practices statute allowing any donor to the fund or the attorney general to sue for damages, punitive damages, and attorneys' fees. If the restricted account is created by the church board and it only holds funds transferred from the general fund, then the board can remove the restriction and transfer the funds to the general fund. In general, however, it is a bad idea. Equally bad is pledging the restricted account as collateral for a third-party loan.

—Frank Sommerville, attorney, CPA, and editorial advisor for Church Finance Today

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From Issue:
Church Finance Today, 2015, December
Posted November 20, 2015
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