Make a conscious effort to keep track of your records and books.
I’m not just referring to your income statement and balance sheet. Do you have a solid track record of attendance? Can you provide a history of when a lender asks for your typical adult attendance each week? What about the numbers and trends in donor engagement Oak Park $500 loan?
Can you track your congregation’s participation levels for an A+?
Maintain a modest debt.
How much is excessive? Borrowing no more than three times unlimited annual donation is a fair rule of thumb. Remember that project expenditure should not exceed cash on hand + loan availability at the time of loan settlement.
Consider carrying out a capital campaign
Churches looking to expand, buy or rebuild their facilities usually launch a professional capital campaign. Lenders prefer to observe the campaign’s results before offering a financing package. Therefore, starting the campaign six months to a year before the funding need is recommended.
Since every ministry is special, the lender will consider the strength of your campaign history (if available) and the consultant’s track record of accomplishment.
Make a debt repayment strategy.
It may be required to launch multiple campaigns until the church can successfully integrate the new loan repayments into the budget. Having a long-term strategy instills confidence in your congregation and your lender.
Prepare to put money down.
Even if you aren’t purchasing a new home, you may be required to make a down payment.
Having a down payment and enough funds to cover early costs might be difficult when starting any business. When speaking with a lender, inquire about their down payment/loan-to-value (LTV) criteria for raw land, construction projects, and refinances.
While a church may be able to borrow higher percentages than those stated, we believe that this is part of a church’s prudent financial management approach.
Have some cash on hand.
Lenders look at a church’s financial reserves because they provide a cushion for unforeseen expenses and show economic planning. Your range will vary, but you should plan on having a three- to six-month reserve to cover all operational expenses.
Choose a reputable contractor/architect.
There are a plethora of trustworthy contractors and architects to choose from. Choose an architect and a general contractor (GC) that have worked with ministries before. This will allow you to collaborate with someone who has the knowledge and experience to maximize the ministry’s resources while also understanding the specific needs of a church venue.
A lender will want to look at the GC’s most recent financials and bonding capacity letter over the past two years. Lenders prefer Guaranteed Maximum Projects (GMPs) because they reduce the risk for both the church and the lender if costs rise during construction.
Get a few different proposals.
Obtaining 2 or 3 finance bids is recommended. Take the time to compute the interest and fees owed to repay the loan when you evaluate the proposals thoroughly. If you’re comparing balloon versus non-balloon loans, you’ll probably need a loan rating system to assist you in finding all of the differences.
In commercial financing, not all loan packages are created equal. Examine any fees or covenants that may affect your ability to repay the loan, refinance, or influence future ministry decisions. If you refinance or pay off a loan early, features like prepayment covenants or interest rate swaps could modify the cost structure of your loan.
Finally, because covenants and conditions differ amongst lenders, the borrower’s responsibility is to comprehend the covenants and conditions of the loan proposals under consideration.
Understand the right time to start
It’s never too early to start talking to a lender specializing in church loans.
A specialized lender can work with your leadership team to establish a financial plan that outlines a step-by-step strategy for preparing for your next facility expansion or purchase.