Garnet Capital Advisors Blog

Drive through virtually any town or city in the world and you are bound to pass by a number of different churches. The specific faith practiced by those who enter the building may differ from place to place, but no question that having a building to congregate in is a common need for all religious groups. Additionally, it is also true that churches provide huge economic benefits to their communities (along with moral and spiritual benefits). From having a place for the faithful to gather in worship together to providing a safe space for children to engage in faith-based activities, churches are a symbol of civic pride for many communities. 

With all of this in mind, churches must have the financial backing and resources that they require in order to operate as effectively as possible. Many banks offer those services to churches with the expectation that they will be paid back over time. However, things don't always go perfectly to script.

Declining Church Attendance Spells Trouble for Some Loans

News that church attendance continues to decline is putting a knot in the stomachs of some bank loan officers. Most churches rely on the donations of their congregation to keep themselves afloat. The church may also host events that raise money for its operations, but declining attendance means lower participation in all forms of money-making activities for the church. 

This dynamic has put certain banks in a bind. If they have lent to churches, the declining numbers could mean that they are unable to recoup their loans in a timely fashion if at all. Thus, a number of these loans may be in danger of default or at least some danger of not being repaid quickly enough to be considered fully performing for regulatory purposes. In either event, it may be helpful to look for outsider investors who are willing to purchase the church loans from you. 

Selling Church Loans

Getting church loans off the books of a bank and into the hands of eager investors can benefit the bank in a number of ways including:

• Immediate Cash Flow - One of the biggest benefits of selling church loans is the immediate cash flow that they generate for the bank. Any bank that is concerned about the performance of its church loans knows that cash in the hand feels a lot better than taking a chance on a potentially risky restructure.
• Reduce the Number of Criticized Assets - Selling church loans means taking them off of the accounting ledger. This can improve your performance and criticized asset ratios.
• Lower Headline Risk - Reducing the odds of foreclosure and bad press for the bank. Reduced risk of turmoil makes it easier to manage the narrative about your financial institution.

There are a lot of reasons why a bank may want to consider looking at its balance sheet and seeing where it can potentially trim some criticized assets. With any luck, it may be possible to improve cash flow and reduce the risks that one takes on at the same time. 

The Buyer Market is Bigger Than You Think

Here at Garnet Capital, we want you to know that the church loan buyer market is larger than you may have imagined. This market can be profitable for investors, serve some of their ESG goals, and may attract a lot of buyers. Plenty of investors are looking for places where they can find investments during this period of decreased available products. Some of them are finding it in the church loan market. 

We have a lengthy list of interested parties when it comes to purchasing church loans. At Garnet Capital, we have worked in this niche industry for a very long time, and we know the ins and outs of how the process works. It is our mission to pair banks with investors who can relieve banks of the economic and brand risk in servicing these types of loans.

Garnet Capital: Value-Added Service

One of the things that you will quickly learn if you partner with us is that we don't stop at simply pairing up buyer and seller. Garnet has commercial underwriters on staff that will delve into the story of a loan, look for value points and summarize those to the investor community. Investors appreciate this level of diligence and detail and thus, Garnet can attract more, and better, bids and bidders. Our services are provided throughout the sale process including assessment of bids, assistance with negotiation of sale agreements, and guidance with the final accounting and wiring of funds.

Among the services that we perform that are most useful to our clients in the church loan market is our willingness to research the neighborhoods where church properties are. This can benefit both sellers and buyers because we dig into the details and present important issues to the investors interested in purchasing the loans.

Garnet Capital's Work in Action

Recently, we advised on a church loan sale that went far better than virtually any of the parties involved could have imagined. It took some convincing as the seller believed that there were only 4 legitimate potential buyers for their loans at the beginning of the process. However, Garnet relayed the market was deeper and that the seller would benefit by running an organized process, with organized information, presented in an organized fashion to a broader audience than they believed existed.

We held the sale during the peak season for vacations and general market malaise. In total, 23 buyers signed NDAs that allowed them to participate in the sale. There were a total of 10 bids submitted, 6 of those bids were above the reserve, and 2 were at or above price talk. The four potential buyers that the seller had identified did not put forward serious offers; one put forward no offer at all, and the other 3 put in bids that were near the bottom of the offerings for the entire listing. Thus, we were very pleased to have been able to identify a larger pool of buyers than the seller thought possible.

Why You Can Count on Us

This is just one example of how Garnet adds value to a transaction. We have decades of transactions and happy sellers to discuss. They are real examples of the success that we have had for our clients. Our commitment to doing the same for you is strong. We are successful at Garnet Capital because we: 

• Provide attention to detail
• Reach out to each potential purchaser on a personalized basis to help them understand the unique benefits of every portfolio
• Hold honest sealed bid auctions so that all buyers are on the same level playing field

For these, and many other reasons, we feel that we are the provider that you should trust to advise on the sale of church loans or other criticized assets. Please contact us for more information about how to get started.