Church Bonds - a type of bonds in which the church acts as a borrower of funds, and church property acts as collateral for the loan.
Church bonds, like other securities, are regulated by government security agencies, which compulsorily check the bonds for compliance with rules and standards designed to protect investors. Churches planning to issue such bonds undertake to conclude a liability and accidental loss insurance contract for the church facility for the entire duration of the bonded loan. In addition, in order to issue church bonds, the church issuer must provide the issuing bank with evidence of available income to pay the debt, as well as determine the value of the property pledged as collateral.
It is worth noting that church bonds also have a number of specific risks:
1. Risk of Church Bankruptcy - Although the bonds are backed by a mortgage on the church, the foreclosure process may be adversely affected by bankruptcy proceedings. There is a possibility that proceeds from the sale of church property will not be able to fully cover the remaining bonds in circulation, and this is especially true if a church bond is issued to raise funds for the construction of a new facility;
2. A separate risk can be called a change in church staff, for example, a change in a pastor who is popular with parishioners, which can significantly affect church fees included in the income used to pay the principal.
3. A separate risk can be called a change in church staff, for example, a change in a pastor who is popular with parishioners, which can significantly affect church fees included in the income used to pay the principal.
Disadvantages of this type of bonds:
1. Due to their specificity, church bonds are considered an asset with low liquidity;
2. Church bonds are not assessed by credit agencies, which significantly increases the credit risk of the bond.