This year I have experienced a rash of calls regarding church bonds. It has been surprising because I have not had calls about selling bonds as a means of building in many years. For whatever reason, it has popped its head back up and pastors are wanting information. My organization, Horizons Stewardship, does not sell bonds and we do not have a relationship with anyone who does. In general we do not feel that bonds are an effective or an appropriate method for churches to use for funds. In fact, we experience a lot of churches who are stuck with bonds and now wish they could rescind that decision.

For simplicity's sake you need to understand that bonds are just another way to borrow money. Instead of getting a loan at a bank, the church makes a promissory note (bond) with all the persons who purchase the bonds. The promise to pay is still there. The church has just exchanged one lender for potentially hundreds. The selling of bonds is governed by individual states and sold through registered agents. This almost always means that a church will have to employ a commercial bonding company for a fee.

Bonds are either directed, sold to the members of the church generally by members of the church, or they are brokered and sold on the open market. Most church bonds are directed using the local church members as the purchasers (lenders).

The problems are numerous. First, church members can easily be lulled into believing they are practicing generosity, where in actuality they are not at all being generous. They are just moving investments to a guaranteed interest rate promised to them by their church. This rate is often higher than what persons can get on bonds in the marketplace, thus encouraging them to be bought. The selling of bonds can discourage members from giving and move them to lending. It changes the whole relationship of the church with its members.

Secondly, bonds can make it very difficult to adjust payment schedules. Many churches have had to work with their bank to make adjustments from time to time. Others have had windfalls where they could pay off a loan early. When you sell bonds you have a contract with often hundreds of lenders and not one. It makes adjustments very difficult. One church I know of has about 40 members who are holding bonds that are paying 8% interest. The other members want to hold a campaign and pay these off, but the forty are standing firmly against it because they want a guaranteed return of 8% on their money. The conflict is tearing the church apart.

Another church we are working with wants to borrow some more money, but they cannot because the bond holders are the primary mortgage holders. The banks will not lend their funds because they would be subordinate to the bondholders.

One church said the only way they could get money was to use a bonding company to sell bonds. The question must be answered then as to why a bank, which exists to loan money, finds you to be an unattractive option? Is it possible that you have no business borrowing that amount of money from anyone?

If you are thinking about bonds, think twice. It is an option, but generally, it is not a very good option.