Churches and Cosigning: A Recipe for Disaster?
When a caller named Jim asked Dave Ramsey for advice on cosigning a $2.3 million expansion loan for his church, the finance guru’s response was unequivocal: “No way.” Ramsey believes that churches should follow biblical principles, citing Proverbs 17:18, which warns against cosigning for others. He argues that religious institutions should not burden their members with financial liabilities.
The Risks of Cosigning
Ramsey’s stance is rooted in his experience of seeing how cosigning can ruin relationships and expose individuals to unnecessary risk. His co-hosts, Ken Coleman and George Kamel, share similar concerns. In a separate call, they questioned why a church would seek personal guarantees from its members if its financial health were truly stable. The lender’s requirement for cosigners, they argue, suggests that the church lacks the financial resources to repay the loan.
Church Finances: A Delicate Balance
Churches in the US regularly seek loans for building projects, but their fluctuating donation income can make lenders hesitant. Some lenders specialize in church financing and may not require a personal guarantee, but others see cosigners as essential to mitigating risks. AGFinancial, a lender specializing in church loans, emphasizes the importance of stable leadership, adequate equity, and consistent cash flow in securing a successful loan without additional personal guarantees.
Ethical Concerns
Asking congregation members to cosign a loan raises ethical concerns, particularly in religious contexts where members are encouraged to give freely rather than take on financial liabilities. Legal complications can also arise if the loan defaults, leaving individuals with significant debt and legal issues. Prominent church finance experts, like attorney Richard Hammar, advise churches to avoid loan practices that could lead to financial and relational strain among members.
A Cautious Approach
Financial advisors like Dave Ramsey recommend that churches approach expansion projects cautiously, thoroughly assessing their long-term financial stability before borrowing. Ideally, they should avoid situations where cosigners are required. By doing so, churches can protect their members from financial risk and maintain a healthy, giving community.
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