Church

Most denominations have constitutions, Books of Order or Books of Discipline that describe how local churches are to be governed (whether or not they are incorporated as a nonprofit corporation).  These typically identify the entities or persons within the local church that are authorized to purchase, sell or encumber property or borrow money on behalf of the church.  In most instances, these functions are performed by a board of trustees, church counsel or similar committee.  In some congregational denominations, the local churches make their own rules which are set forth in bylaws or similar documents.  If the local church cannot show you the language upon which they are relying to establish that the signatories on the loan documents have the authority to bind the borrower, they should be able to put the Bank in touch with a central agency for the denomination that deals with these matters.  (For example, in the United Methodist Church, there is a General Council of Finance and Administration in Chicago, which has two attorneys on staff who, among other things, guide local churches and their attorneys through issues like this.)

If the borrowing entity is part of a larger denomination, it is very important to accurately identify the borrower and the people that have the authority to bind the borrower and to understand whether the local church must hold all of its property in trust for the denomination as a whole.  The Bank should account for the possibility that some larger entity has an interest in the local church property.

The Bank should obtain a copy of the church’s governing documents and a resolution signed by its trustees or council members.  If the church is formally incorporated as a nonprofit corporation, all the authorization documentation for a corporation should be obtained. If it is not a corporation the authorization documentation for an unincorporated nonprofit association should be obtained.  It is also strongly recommended that the Bank obtain personal guarantees from one or more of the church’s largest contributors, a copy of the annual budget, copies of all pledge cards and financial statements.