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Loan Modifications in a Crisis

Steps your church can take to restructure debt when full payment, or any payment, becomes difficult.

Last Reviewed: November 30, 2021
Loan Modifications in a Crisis
Image: Andriy Onufriyenko | Getty

The COVID-19 pandemic created an unprecedented moment in our lifetime and has required extraordinary measures by church administrators. It’s certain you have had to make adjustments in the way your church receives and spends contributions. For many of you, those adjustments could be complicated by church debt.

If your church has debt, you realize that payments have to be made, but making the full payment—and in a timely manner—may seem nearly impossible for any variety of reasons. If that’s a situation your church finds itself in, initiating a conversation with your lender could be beneficial.

Important highlights from the FDIC and others

The FDIC (Federal Deposit Insurance Corporation) recently posted highlights from the Interagency Statement on Loan Modifications and Reporting by Financial Institutions Working With Customers Affected by the Coronavirus. This interagency group included the FDIC, the Board of Governors of the Federal Reserve Bank, state banking regulators, and others. The FDIC post includes the following:

  • It “encourages financial institutions to work constructively with borrowers affected by COVID-19”;
  • It “will not criticize institutions for prudent loan modifications and will not direct supervised institutions to automatically categorize COVID-19-related loan modifications as troubled debt restructurings (TDRs)”;
  • It “confirmed with staff of the Financial Accounting Standards Board (FASB) that short-term modifications made on a good-faith basis in response to COVID-19 to borrowers who were current prior to any relief are not TDRs”;
  • It “views prudent loan modification programs to financial institution customers affected by COVID-19 as positive actions that can effectively manage or mitigate adverse effects on borrowers due to COVID-19, and lead to improved loan performance and reduced credit risk.”

The full document can be found here.

Preparing a continuance plan

“Prudent loan modifications,” as referenced above, means that churches will need to undergo some type of underwriting. Each bank will have its own set of requirements, but the church should be prepared to submit a continuance plan to outline specific steps they will take to move forward and meet future obligations.

Some of the documented steps you may want to incorporate at your church, and then include in a continuance plan, are the following:

  • The church’s switch to online-only worship services and the church’s expectations regarding how long that will continue
  • The implementation of digital forms of ministry, such as men’s, women’s, and youth groups—as well as community/small groups
  • The church’s work to communicate the alternative ways and methods congregants can give their regular tithes and offerings
  • The ways your church is tracking giving trends each week to proactively monitor the pandemic’s effects, and then working to improve how the church communicates its financial position with the congregation as well as modify its ability to make changes quickly in response to those trends
  • The church’s creation of a Financial Advisory Standing Team (FAST) to develop trigger points for decisions, obtain perspectives from various departments, and adjust budgeting
  • The church’s updated plans for remote work, including provisions for tasks that need to be completed onsite
  • Cash projection reporting processes and procedures
  • Spending reductions

Loan modifications can take many forms, such as temporary payment deferral, an interest-only duration, a reduced interest rate, an extension of the amortization term, and/or waiver of loan covenants. The options you consider requesting should be based on the ongoing needs of the church.

Communicating with your lender

Communicating proactively with your lender may include language similar to this:

In response to the ministry disruption caused by COVID-19, we have initiated our ministry continuance plan, which includes formally requesting a loan modification. We understand the FDIC has recently issued guidance encouraging financial institutions to work with borrowers affected by COVID-19. The recent executive orders issued by the State of ______ have prevented us from holding our regular church gatherings. Although we have converted to a virtual platform, for both our employees and ministry delivery, we have experienced a significant decline in donations. These declines have put a strain on our ability to meet our monthly obligations. Therefore, we are requesting a loan modification to defer payments on our loan for ninety (90) days. A summary of our ministry continuance plan is attached for your review and reference.

If your church already has established a relationship with someone at your financial institution, check first with this individual to see what specific information should be included in the request. By providing what’s needed early in the process, you’ll most likely decrease the time it takes to receive a response or approval.

Modification is not loan forgiveness

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 on both churches as well as individuals within the church. However, not everyone is being financially impacted at this point and some donors may be able to assist more when they understand the extensive measures your church is taking to be financially responsible. As always, communication is key.

Stop, pray, and communicate

When some of us were young, we learned the commands to STOP! DROP! and ROLL! Hopefully, that was a lesson that none, or very few of us, ever had to act upon. We still remember it well and can recite it easily. Let’s change that slightly and apply it to our churches as STOP! PRAY! and COMMUNICATE! With those keys, we will weather this storm and may find that ministry has been impacted in ways that will serve the Church well 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 .

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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  • April 8, 2020
  • Last Reviewed: November 30, 2021

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