When your church building is bursting at the seams, or your newly approved vision for growth includes a major remodel of your worship space or educational facility, it’s important to be prepared. While church leaders naturally tend to focus on the building plans, having the money to complete those plans is crucial, and a step that must be taken early in the process. There are a number of ways to secure the needed funds for your building project and we’ll touch on them over several posts, this time focusing on bank financing.
Has the Lending Institution Worked with Churches on Building Projects?
One important question to ask when researching lending institutions is whether they have worked with churches before. While you are well acquainted with your proposed church building project, know the community you serve, and have a clear idea why you’re doing this work for Christ, the lending institution is going to have a very different perspective. This doesn’t mean you can’t work with a lender that hasn’t financed a church project, but you will need to know how to “translate” your church’s financial indicators and information into language that a lender can understand. Here are the types of questions that lenders working with churches tend to ask, and the data that they take into consideration.
Lenders are very interested in the leadership of an organization. They will ask lots of questions about the church leadership, especially the senior pastor. Some questions include:
- How long has the senior pastor been with this church?
- What is the pattern of growth in attendance during the senior pastor’s tenure?
- What is the pattern of giving during the senior pastor’s tenure?
The total amount of funds that you will be able to borrow will be between one and four times the church’s annual revenues, or operational budget. In order to determine your particular church’s borrowing potential, the lender will ask a number of other questions, including:
- Is the church experiencing an appreciable pattern of numerical growth in attendance?
- Has the church experienced multiple years of financial growth?
- Is the financial trend for the church increasing or decreasing?
The lender also will not want the church to borrow more than 80 percent of the appraised value of any property being used as collateral for the loan.
Debt Service Potential
Finally, the lender will be assessing what they believe a church can afford in payments on the mortgage. They will not want a church to spend more than 35 percent of its annual revenues on debt service. Banks will also likely require the amount of debt be spread out among at least 100 “giving units,” which is a calculation of the number of family households who contribute, not the total members of the congregation. This is to decrease the risk to the loan if joblessness or another financial hardship were to strike the community. Many lending institutions will not want to approve a loan value totaling more than $1,000 per giving unit available within the church community.
If you’re concerned that available bank financing is limiting what your church can do, remember that a loan is not your only financial option when planning a church building or remodeling project. In the next part of this series, we will discuss what to anticipate in a capital stewardship campaign.
Sign up for our free i3 webinar series to learn more about financing your next church building project. You can also contact us anytime for help in navigating the financial or any other aspect of your church building project.