The 23-year-old, who is out of contract next summer, has not featured for the Royals in the Premier League this season.
A host of Championship clubs are understood to be monitoring proceedings, but McDermott is keen to tie the player to a long-term deal.
"It's not ideal. We would prefer he signs a contract and then goes out on loan and plays games. We will have to see and then reassess it," McDermott told the Bracknell Forest Standard.
"I need to talk to him and see where we have got to. I'm trying to give Simon best advice and I want to make sure all my players do well.
"I think I've done that. I've told him to sign a contract here so he is protected and then get out on loan. If he does well then he will come back to us. Or, he does well and gets sold to another Premier League side. And if he doesn't do well then he has a three-year contract here at Reading."
Church has been at Reading since 2003.