Church Loan Modifications in a Crisis

Restructuring your church’s debt when full payment, or any payment, becomes difficult.

The COVID-19 pandemic changed the way churches operate both logistically and from a ministry perspective.

For example, more people may be participating in worship services now, but fewer are attending in person, while online giving—once a novelty to many churches—is becoming commonplace.

Church administration is just as impacted by the changes as frontline ministry.

We want to focus on a specific related topic that is relevant for many, but not all, churches: loan modifications.

If your church has debt, and its struggling to make its payments on it, have you considered whether the payment plan offers any leeway? If not, it may be time to have a conversation with your lender.

This leeway can provide some needed, albeit temporary, relief as your church weathers a financial hardship and needs time to regroup.

Prudent loan modifications

During the pandemic, the FDIC (Federal Deposit Insurance Corporation) posted highlights from the Interagency Statement on Loan Modifications and Reporting by Financial Institutions Working With Customers Affected by the Coronavirus.

Now that we are moving beyond the pandemic to deal with other issues in the economy, some of the ideas the FDIC discussed are still relevant.

One of the highlights, “prudent loan modifications,” explored how borrowers can work with lenders if they find themselves out of compliance with loan covenants or unable to make payments.

Borrowers will need to undergo some type of underwriting, and each bank will have its own set of requirements. But a church facing a hardship should be prepared to submit a continuance plan to outline the specific steps it will take as it works to meet future obligations.

These steps may include:

  • Engaging the growing online community to participate financially and expectations for that to continue.
  • Developing online ministry options for men’s, women’s and children’s, youth and community group ministries.
  • Communicating better about giving opportunities and methods.
  • Proactively monitoring weekly giving trends and adjusting accordingly.
  • Developing a Financial Advisory Standing Team (FAST) to identify trigger points for decisions, obtain perspective from various departments, and adjust budgets.
  • Developing plans for any ongoing remote work, laying out expectations for this arrangement, and analyzing its operational impact.
  • Cash projection reporting.
  • Spending reductions.

Loan modifications can come in the form of temporary payment deferral, an interest-only duration, a reduced interest rate, an extension of the amortization term, and waiver of loan covenants. Which option you choose should be based on your church’s needs.

Depending on when your loan originated, understand that interest rate hikes in the past year are likely to affect any modification you may desire.

Communication is key

Communicating proactively with your lender may include language like this:

In response to the [cause of current economic difficulty resulting in request for modification], we have initiated our ministry continuance plan which includes formally requesting a loan modification. [Expand on the results of the cause here.] Therefore, we are requesting a loan modification to defer payments on our loan for 90 days. A summary of our ministry continuance plan is attached for your review and reference.

Tip: If you have a good rapport with the relationship manager at your financial institution, certainly check with this individual first to see what specific information should be included in the request. The better the information you provide early in the process, the less time it should take to receive a response or approval.

Remember, a loan modification is not loan forgiveness, and may only be a temporary reprieve from your normal debt service obligation.

You will need to continue to actively monitor the situation and determine how to prepare for payments when the modification period expires.

We recognize the strain that is put on both churches as well as individuals within the church during the current inflation and potential recession environment. However, not everyone is being financially impacted at this point and some individuals may be able to assist more when they understand the extensive measures your church is taking to be financially responsible.

We all learned “Stop, drop, roll!” as children. Hopefully, it’s a command very few of us have had to act upon. But, we still remember it well and can recite it easily.

Let’s change that slightly and apply it to our churches as “Stop, pray, communicate!”

With those keys, we can weather a financial storm—and we may even find that ministry has been impacted in positive ways that will serve the church for decades to come.

Vonna Laue, CPA, is a senior editorial advisor for Church Law & Tax. In 2010, she was inducted into The Church Network’s Church Management Hall of Fame.

Michelle Sanchez, CPA, serves as a CFO consultant and on the board of directors for mission focused non-profits, churches, and higher education institutions. She is also the CFO at Horizon Christian Fellowship .

Editor’s Note: This content was last reviewed and updated in March 2023.

This content is designed to provide accurate and authoritative information in regard to the subject matter covered. It is sold with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a competent professional person should be sought. "From a Declaration of Principles jointly adopted by a Committee of the American Bar Association and a Committee of Publishers and Associations." Due to the nature of the U.S. legal system, laws and regulations constantly change. The editors encourage readers to carefully search the site for all content related to the topic of interest and consult qualified local counsel to verify the status of specific statutes, laws, regulations, and precedential court holdings.

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