Should I co-sign a loan for a church building?
I am a member of a fundamental Bible-teaching church and firmly believe in the "literal" Word of the Bible. But I find myself in a difficult situation. We are building a new Church building. The building project was kicked off using traditional construction bank financing. We had enough assets and membership support at the time to commence the project. Halfway thru the construction, the bank got nervous because we were behind on the construction schedule and requested guarantors on the interim financing to help mitigate their risk. I and another member deposited $150,000 in designated accounts with the bank as collateral. Keep in mind we have always been able to make our interim construction finance payments. We discussed this move as "co-signing" and not wise; however, the equity position of the building swayed us to put up the collateral. The building was just appraised for $1.8 million with a debt of $900,000. Our logic was that even if we had to liquidate we could clear our bank debts and save the collateral of the church supporters. Our plan all along was for the asset itself to stand-alone and not require any co-signers or guarantors for any financial shortfalls. Therefore, final financing would not require co-signers. We have just learned that the bank is requiring co-signers or guarantors for the permanent financing for the church building. I now find myself in a box and would like your advice based on scripture. I believe I made a grave error by cosigning the construction loan earlier. Perhaps God had another plan. I'm leaning toward not cosigning which may potentially put me at odds with some of my Christian brothers and leaders.
If possible, reply as soon as possible. I have to make a final decision soon.
God has consistently stated that co-signing loans is not a wise choice. See the lesson "Avoiding Debt" for a number of passages regarding this issue. It is not that co-signing is a sin per se, but that it places the co-signer in a very poor situation. You incur full obligation for the payment of the loan and yet you have no control over what was purchased.
Let us suppose that ten years from now the area you live in suffers a heavy economic downturn which forces half your members to leave to other places seeking jobs (such has happened in many areas). The church no longer has the income from contributions to make its payments. The bank will seek payment from all sources available to it. It will foreclose on the property, sell it at a distressed value, and seek anything remaining from the co-signers. Are you willing to accept the risk? Are you financially able to handle the risk?
The bank is seeking to minimize its risks in gaining repayment of its loan. Co-signers are not required for any loan. The request for co-signers means the loan officers (or the underwriters of the loan) are nervous about the long-term financial stability of the congregation. Your choices are:
- Prove to them that even if the congregation folded, they could regain the full amount of the loan by selling the building. Also, give evidence from the congregation or similar congregations of the long-term stability of the group.
- Shop for a loan with another lender, preferably one more used to dealing with churches and corporations.
- Agree to co-sign, and set the guaranteeing funds aside until the obligation is retired. Basically, you need to be in the position to treat the money as spent and "lost" to you. If nothing happens, then great, you have found funds again. But if the worse happens and the funds are used to cover the church's obligations, well, it was already spent in your mind. "And if you lend to those from whom you hope to receive back, what credit is that to you? For even sinners lend to sinners to receive as much back. But love your enemies, do good, and lend, hoping for nothing in return; and your reward will be great, and you will be sons of the Most High. For He is kind to the unthankful and evil" (Luke 6:34-35).
Since I don't know your financial situation, I can't say what is the best choice for you and your family. Your first obligation is to provide for your own (I Timothy 5:8). If you are able to do this and have funds available to aid others, then you can freely give aid (I Timothy 6:17-19).