Frequently Asked Questions
You have Questions, We have Answers
Q: What are church bonds?
A: Certificates of indebtedness sold by churches to obtain funds for capital needs (i.e., purchase property, build or renovate facilities, refinance debt). The church is the borrower and the bond purchasers (many times the church members) are the lenders.
Q: Are church bonds insured or guaranteed?
A: Neither; the bonds are mortgage bonds and are secured by the church property.
Q: How does the church repay funds borrowed through bonds?
A: The church designates a portion of its income for deposit into a special bond repayment account, held by an independent corporate trustee, similar to a conventional loan payment. Such funds provide for payment of interest when due, and principal upon maturity.
Q: How is the interest paid?
A: With simple interest bonds the investor receives interest payments every 3 months. With compound interest bonds interest is compounded every 6 months and the investor receives principal plus accrued interest at maturity.
Q: Do church bond interest rates fluctuate with market conditions?
A: No. They are fixed rate investments.
Q: Are fees or loads associated with buying?
A: No. The investor never pays fees, loads or commissions.
Q: When do bonds mature?
A: A portion of the bonds normally mature every 6 months during the life of the bond issue. A schedule of maturities provides specific maturity dates. The church has the right to redeem any bond prior to its scheduled maturity.
Q: Is the interest earned taxable?
A: Yes, as ordinary income on an annual basis. However, IRAs may be used to defer taxes. Other tax planning techniques may enable investors to significantly reduce or, in some cases, avoid these taxes. Investors should consult their tax advisor regarding their individual situation.
About Church Bond Programs
Q: What are the 3 basic types of bond programs available through Share Financial Services?
A: (1) Local Placement Bond Program – Most utilized because of low cost and designed to sell all bonds to church members, their families and friends.
A: (2) Local Placement Bond Program with Brokerage Option – Designed to offer a portion of the church’s bonds (at its option) through a broker to investors outside the church after sales to members and church friends are completed.
A: (3) Fully Brokered – Designed to provide the option of financing with no membership involvement, as the broker sells bonds to investors not associated with the church.
Q: How do bank loans compare to bond programs?
A: Traditional bank loans are adjustable rate mortgages (ARMs) with interest rates typically above prime. These loans generally have balloon payments due in three to five years at which time the interest rates are reset to the current prime+ rate being charged by the bank. These loans do not encourage church member participation and do not benefit the church members financially. Bonds, on the other hand, offer the church FIXED interest rates for up to 25 years with NO prepayment penalties and NO requirement for personal guarantors! Additionally, bond financing encourages membership involvement and rewards participation with a rate of return higher than many alternative comparable investments.
Q: How much can a church finance?
A: Limits are determined by established underwriting criteria that include (but are not limited to) the following:
Q: Who determines the interest rate on the bonds?
A: Share makes recommendations and the church and Share ultimately determine interest rates.
Q: What is the length of repayment?
A: A typical Share program establishes church debt repayment over a period not to exceed 20 - 25 years.
Q: Does the church have a choice of repayment plans?
A: Yes. Flexible plans may provide for fixed payments for the life of the bond program or allow for graduated payments during the program’s early years.
Q: How does Share Financial Services implement a bond sales program within the congregation?
A: Bond investment opportunities are communicated to members through letters, brochures, bulletin inserts, announcements, and church-wide information meetings that allow members and friends to ask detailed questions. Bond sales are made by prospectus that provides details pertinent to the church and bond program.
Q: Is it advisable to use a bond program in conjunction with a capital stewardship program?2
A: Yes. Share has a background in successfully working with Capital Stewardship Programs (CSPs). Share believes that a successful CSP is in the best interest of the church. We know how to best integrate the CSP with a bond financing program.