Pastor, Tithing Sway Church Loan Risks: Print Preview
- Church properties risky when it comes to resales.
- History of capital campaigns, cash flow are scrutinized by lenders.
- CUSOs tend to have very small amount of church loans.
Come Sunday, pews across America fill with parishioners seeking a spiritual uplift as pastors share sermons to help congregations make it through another week.
The viability of cash flow is a critical factor when it comes to church loans because they are hyper sensitive to economic cycles, Moon said. A higher amount of patronage during good times will produce a strong debt coverage ratio, which is the inverse of the loan to value or how many times you’ve covered your loan principal by the liquidation of your collateral. For instance, if it’s a $100,000 loan and the liquidation is $120,000, the debt coverage ratio would be 1.2%.
Another element that makes church loans risky is their impact when a recession hits, Moon said. When cash flow dries up, a credit union will likely have a high percentage of troubled debt restructured loans. In May 2012, the NCUA Board approved a final rule indicating TDRs will be calculated consistently with loan contract terms, rather than requiring past due status to be reported until six consecutive on-time payments have been made, among other provisions.