Financing
As a general rule, if the church plans to borrow funds for any project, the total long-term debt should stay within approximately three times the annual income. Many churches are in financial difficulty now because of over-borrowing or starting Christian schools while they had existing debt. We suggest you heed the old adage, “don’t go too fast too soon with too little.”
Types of Financing
Money in hand
Bonds: The church sells all bonds or a bonding company buys all bonds. Usually a one year maximum term. The average bond program takes several weeks to complete
Banks
Savings and Loan Associations
Individuals
Capital Gift Programs: According to national statistics, about 65-85% of monies pledged are eventually collected
What Lending Institutions Will Want
Collateral: Normally a lending institution will loan 60-70% of the value of the new structure
Capacity: Ability to repay the loan. Mortgage payments should stay within a maximum 35% of monthly contributions
Credit: The bank looks at how the church has paid its bills
Pastor’s Character: How long has he been with the church? How is he viewed in the community? What is his life-style? How is he viewed by his church? Has he had any previous dealings with lending institutions?
Tenure of the Organization: How long has it existed?
Audited Financial Statements: Usually at least the last year of operation is required
Costs to Consider
Land
Site engineering, surveys, soil tests
Architectural services
Landscaping, parking, utilities
Furnishings
Interest on construction loan during construction, closing costs of construction and permanent loan, attorney fees
Time/Inflation: How long will the entire project really take?
Exigencies: Plan for at least 2% of total for unexpected costs
Perpetual maintenance and utility costs (painting, repairs, heating and cooling, personnel,etc.)
Tips on Preparing Your Financial Summary
The pastor usually plays a key role in securing a loan
The more accurate and precise a financial package the church puts together the better their chances for receiving loan approval. The church is competing with all businesses for this money. Every question on the loan application should be answered accurately
Banks lend money based only on what they know, not on what they don’t know
Complete, accurate financial statements and audits are a must
Start early. Get a list of the exact requirements from each institution
