What Projects Can Churches Finance?
One sign of a growing and healthy community is a thriving church. Whether you are reaping the harvest of planting a new church in your community or you’re a member of a well-established congregation, understanding how church loans work should be fundamental knowledge for church leadership. Unfortunately, guidance from reliable church financing information can be difficult to find when you need to stewardly plan a project.
Types of Church Loans
- Short Term Mortgage
- Long Term Mortgage
- Unsecured Church Loan
Financing For
- New Construction
- Refinancing
- Remodeling
Roadmap to Church Loans and Financials
As congregation numbers swell, church leadership is often forced to quickly remedy overcrowded worship spaces. This often means expansion or new construction, which can be very expensive. To complete a project, you will need to know the ins and outs of financing your new steel church building. We recently spoke with John Berardino, president of Griffin Capital Funding, about church loans and financing to provide some reliable guidelines for you to follow.
What Are Lenders Looking For?
Before you rush to the bank for a new church loan, consider what potential lenders will be looking for before approving a loan. At the center of all loan agreements, of course, is trust. Lenders want to know they can trust a borrower to pay back the loan. So what’s the best way to show your church will be a consistent and reliable borrower? Berardino outlines a few of the basic requirements of the loan application process.
“We need to see your church has been in business for a minimum of three years,” Berardino said. He notes it’s possible to be approved with only a two-year history, but it requires an exception. “That’s our baseline requirement before you walk in the door.”
Identify One Time Expenses
Make sure you identify the expense and the amount if the church has paid a lump sum for any expenditures over the past 3-5 years. These one-time expenses can be added back to the net income since they are not a typical expense such as staff salaries or utilities. In many cases, these one-time expenses can bring a church on the bubble of qualifying for a loan into satisfactory standing.
Example One Time Expenses
- New Pews or Chairs
- Repaving
- Repairing Storm Damage
Do Not Qualify
- Staff Salaries
- Missions
- Payroll Taxes
Is Lack of Credit an Issue?
Some churches are hesitant to apply because they lack a substantial credit history. According to Berardino, that’s not a problem. “Bottom line: the lack of church credit is never seen as a negative.” That’s encouraging for new and developing congregations that have yet to need extra funding.
Under normal circumstances, Griffin Capital does not pull the personal credit of the church leadership, so any credit problems they have personally are not usually taken into consideration.
Profit and Loss Statement
In addition to three years of business, Griffin Capital requires three years of profit and loss statements. Lenders need to see that funds are coming in that show the ability to make the payment. Operating budgets, attendance tracking and balance sheets can also make lenders more comfortable that your church is capable of handling the church loan.
Debt Income Ratio
Ultimately your church loan will come down to whether or not the lender is comfortable the church’s net income can reliably service the debt each month. Net income is how much money is left in church’s bank account after all expenses have been deducted. In simple terms, your new monthly payment multiplied by 12 months can only be a certain percentage of the church’s net income. Every lender is different, but a good target to aim at is 42% of annual net income.
Other Considerations
Buying Land
If you already own a parcel of land it can be used as collateral to help secure the loan. If you need to buy land as part of the project, this guide will help you navigate the process.
Church Design Services
If you are in the planning phase of your project, our church design package is exactly what you need to visualize the project, begin a capital campaign and outline all project costs.
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