A Practical Guide to Church Bond Financing

In the late 1970s, First United Methodist Church in Tulsa, Oklahoma experienced dynamic growth. Much of the growth came from young growing families eager to know God in a more personal way. The Church's facilities rapidly became over crowded. The Church needed a new modern children's building to meet this need. Pledges were taken, gifts were made and construction began in reliance upon the pledges made. During construction, the general economy declined, pushing mortgage rates over 20% in some cases. An interim construction loan was obtained to complete construction, with a market-based interest rate, but because the interest rates on that loan increased dramatically and fluctuated wildly, the Church was unable to plan or budget effectively. This uncertainty required the Church to find a way to fix the interest rates and extend the maturity of the debt.

The solution was to offer church bonds, primarily to members of the Church, urging the members to invest financially, as well as spiritually, in their Church. The plan gave the members a choice of buying church bonds with a maturity of either 5 years paying 11% interest or 10 years paying 12% interest. To encourage the members to invest, the interest rate on all the bonds were higher than market rates. First Methodist successfully raised $2 million from the sale of church bonds, paid off the fluctuating bank loan, fixed the maturity over 10 years and completed construction on time.

These materials provide a commentary about the nature of church bonds, provide sample documents used to comply with applicable law and provide other needed information necessary for other churches to sell their own church bonds.

TO GOD BE THE GLORY!