Amid COVID-19, churches with debt urged to be proactive

GRAPEVINE—As the COVID-19 pandemic creates economic volatility, churches struggling to stay current on their loan payments are being advised to contact their lenders and not panic.

Of the more than 300,000 churches in the United States, thousands carry debt. Finances may well be tightening at those congregations as the coronavirus drives down offerings. The Barna Group reported on its ChurchPulse podcast that 62 percent of U.S. pastors surveyed in mid-March said giving was down at their churches. Thirty-four percent said it was at the same level as before the COVID-19 pandemic, and just 2 percent said offerings had increased.

Bart McDonald, executive director of the Southern Baptists of Texas Foundation (SBTF), said churches struggling to pay their debts still have time to head off financial disaster. But they must act soon.

“There’s going to be relief in the short term,” McDonald said. Especially if a church was current on its loan payments at the outset of the pandemic, “there’s going to be flexibility” from lenders.

McDonald and other Southern Baptists of Texas Convention leaders hope they can disseminate counsel to struggling churches while the window of opportunity to work with lenders remains open. They are especially eager to help churches with both debt and minimal cash reserves.

According to an analysis by the SBTC staff, approximately 125 Texas Southern Baptist churches are at risk of not being able to pay their pastors because of the coronavirus downturn. If the pandemic keeps church facilities shuttered through May 10, the number could rise to 175—slightly more if the crisis stretches into June. The financial stress on those churches could be magnified by any outstanding debt, according to the analysis.

Small churches with debt may be in greatest danger. They have been impacted by the coronavirus more than large and medium-sized congregations, Barna reported. In mid-March, churches with 250 or more attendees reported better attendance than their smaller counterparts, while medium-sized churches “did pretty well.”

McDonald recommended several action steps for churches with debt. First, create a contingency budget reforecasting income during the pandemic and allocating funds for loan payments. Then, call the lender if your church still can’t make its payments, he said.

A Mar. 22 memo from the federal government to federally insured lenders authorized financial institutions—including those serving churches—to “mitigate adverse effects on borrowers due to COVID-19” by modifying repayment plans in the short term. Practically, that could mean “payment deferrals, fee waivers, [and] extensions of repayment terms.”

SBTC chief financial officer Joe Davis urged churches with debt to “communicate early and often with their lender.”

“Financial institutions are working to understand and respond to the uncertain position that their borrowers face,” he said.

The SBTF sent a Mar. 26 notice to its approximately 50 borrowing clients notifying them of options during the pandemic. Among them:

• Borrowers may convert their loans to interest-only payments for six months.
• Borrowers may access funds they were required to deposit with the Foundation and use them for debt payments. Those funds must be redeposited after the crisis.
• Borrowers may receive free consulting from the Foundation as they seek to restructure budgets.

McDonald expects similar options from other lenders, including Baptist foundations. The SBTF is among five state Baptist foundations that lend to churches out of 34 total state foundations.

For churches that need more capital to weather the crisis, securing an additional loan is another possibility, McDonald said, though he cautioned churches to keep some cash reserves on hand.

Cash-strapped churches will have access to federally guaranteed loans authorized under the coronavirus relief bill passed by Congress and signed into law Mar. 27 by President Trump. The bill allows the Small Business Administration (SBA) to help guarantee loans at participating banks for organizations with up to 500 employees. The loans may be used to cover payroll, health insurance, mortgage or rent payments and other specified expenses. The loans can be forgiven if used for payroll within specified parameters.

After Hurricane Harvey devastated the Gulf Coast in 2017, some affected SBTC churches secured SBA loans through a similar program, McDonald said. “Those loans were priced well below market, had flexible periods of interest only and in some cases deferrals before the churches had to begin repaying the amounts borrowed,” he said.

For churches, the effects of the present economic downturn will increase the longer it lasts, McDonald said, and it may “fundamentally change the American economic system.” Davis noted “the financial impact of the COVID-19 epidemic is still unfolding but is certain to be remarkable.”

Though economic forecasts vary, a slow recovery could begin the second half of 2020 and gain momentum in 2021, according to USA Today. Until then, McDonald said, the SBTC and the SBTF will seek “to get our churches to the other side of the pandemic.”