Church Funding Lexicon: Understanding Lending Terminology

Church Funding Lexicon: Understanding Lending Terminology

Every new adventure brings with it new experiences—and sometimes new terminology. For example, if you decide to begin rock climbing, you’ll need to learn the difference between an anchor and a carabiner, among other terms.

When it’s time to construct a new church building or renovate an existing property, you will also encounter some specific terminology—having to do with church funding and financing.

To make the process easier, we have gathered together some of the more common and useful terms you may encounter when seeking funding for construction projects. We often use these words in our free i3 webinars, so this list will hopefully also make our webinars more accessible to you as you pursue your church building vision.

Church Attendance

This is the number of people in your church or congregation. Lenders want to know if your weekly attendance is growing, the age of your attenders, and the geographical area they come from. The age of the congregation is important because, for church funding purposes, different age ranges represent different giving habits, as well as different financial responsibilities that might affect people’s giving potential.

Giving Units

The number of different groups and individuals who are giving to a church is expressed in terms of giving units. Usually a giving unit is a family—even if both parents work, the family commonly gives one gift to the church, so they are considered one giving unit.

Annual Revenue

Annual revenue is the amount of money a church brings in over one year. The number includes not just money that has been given to the church but also other sources of revenue, such as church building rentals for birthday parties, income from schools or after-school programs, etc. Lenders will want to see three to five years’ worth of annual revenue numbers to get a sense of trends and what types of income are growing or decreasing.

Appraised Value

This is the amount that the lender thinks your new or remodeled church building will be worth when the work is done. Lenders will generally loan only about 80 percent of the appraised value—and that value will likely seem low. That’s because appraisers factor in the resale value of a building, and since a church building is usually seen as a “one-use” property, they anticipate it will be harder to find buyers.

Debt Service

The amount to be paid on the loan for your church building project is called your debt service. The amount of these mortgage payments over a year should not exceed 35 percent of your annual budget (or 35 percent of your annual revenue), except in a few very extraordinary circumstances. Many lending institutions also believe a church’s annual debt service should not exceed $1,000 per giving unit per year.

Dodd-Frank Act

The Dodd-Frank act was passed by Congress in 2010. It set strict guidelines for how appraisers did their work, requiring documentation, backup support, and historic resale information on similar types of buildings to justify their valuations. This caused problems for churches, since most church buildings are sold for a relatively low value.

Congress has recently rolled back many of the Dodd-Frank restrictions (on all but about 10 of the largest banks), so more lenders may be willing to work with churches in the future. We’re waiting to see what the practical effect will be for this rollback.

New Webinars for Your New Church Funding Vocabulary

We will keep you informed about the effects of updates to Dodd-Frank as we learn them, so keep an eye out for future posts. Also, Dodd-Frank and other facets of church funding and construction are frequently discussed in our free i3 webinars—which is why we encourage you to sign up for them today. Simply visit our home page to register.

2018-06-26T16:02:16+00:00 June 26th, 2018|Church Building, Financing|