A church loan is pretty much a necessity in any
church construction project.
embarking on securing a church loan for
construction, the church leadership must first agree how much
loan payment the church can afford on a monthly basis
in order to service a loan. After careful consideration of
the church's finances, the church must come to a monthly budget amount
that will then determine the amount of church loan (debt) you
can handle. The money is still out there, so even in the current
economic crisis, you can still get a church loan.
Two Key Requirements to Qualify For
(as seen in Executive For Christ
A church can typically qualify for a
construction loan for about 3 to 3.5 times its current annual income.
Given a church with an annual income of $500,000, you should expect that the maximum
church construction loan for which the bank or lender would
qualify the church would be in the $1.5M-$1.75M. Please
not that this
number represents the maximum *total* indebtedness! If the church has
outstanding loan debt, the amount of church construction loan that
they would qualify for would be reduced by the amount of current
Building Tip: Your
church building plans should always be
fitted to its budget, not the building budget to the plans!
Banks make church
loans based on the cash flow of the church. The church
must demonstrate how they can service the church loan from their
current cash flow. Many churches think that because they
have a half-million dollars in land assets, that they can get a
a million dollars. That is not the case. Banks loan money
based on cash flow. The church will need to show assets
that are about 125% greater than the total indebtedness, but the
bank will not make church loans solely on assets.
At the time of this writing, your church would
probably expect to pay
approximately $700 per month for every $100,000 borrowed by the
church in a construction loan. If you determined that your
budget permitted a $4,000 per month payment to service a church
loan, you are looking at a total borrowing ability of just
over $550,000, assuming your
church had no other debt. Regardless of how much you think
you can afford, the lender will cap your church loan at an
amount that insures that your payment is less than about 30-35%
of your total income.
Having a hard
time getting financing? - We can help, find out how!
When making a church loan, most banks (and
church bond programs) require at least
3 or more years of financial history and 20% equity in the
project by the church. If your church cannot meet those
requirements, you may want to consider a new program that offers
a one of these alternative church
Additionally, a capital stewardship
campaign may help you qualify for a larger loan, however,
the best use of capital stewardship funds is not usually to qualify for
a larger church loan; but to retire that church loan as quickly as
One of the secrets to getting the best church loan,
particularly for church construction, is in preparation. Before
you approach a bank with a loan application, check around to see
which lenders are the most "church friendly". A
consultant or church
(note that the broker might less open to giving away this
information [wink]). It will be best to approach at least
3-4 church lenders; two larger lenders and two smaller or
regional banks for your church loan. It will also save you time
to see if they do church construction loans. Some lenders
prefer not to loan for new church construction.
Before you approach any lender, complete a full financial
package that will ask and answer all the questions that the
church lender may have in trying to approve your loan. This is
MUCH more than just giving them some financial and attendance
history. A complete church loan application package will make the bank or lender
feel more comfortable, and since church lending is done based on
perceived risk, the better the information you provide at the
outset, the lower the perceived risk when making the loan.
Church financial statements should be
complete, in a standard GAP format, and fully documented.
An accountant can help prepare financials, but a
church consultant or loan broker can help prepare the complete financial
package that will help you get the best
to do months BEFORE you apply for a loan.
- Reduce Expenses. Take a
sharp knife to the expense side of the budget.
Consider it as dressing the vine to get a bigger harvest
- Increase Regular Giving.
To Quote Dr. Rogers, "Thar's GOLD in them there pews!"
We recommend the Dynamic Giving
Stewardship Program. Dr. Rogers formulated this
successful program in his own church where he averaged
21% increases in giving every year for 5 years in a row
using the 10 steps outlined in his program.
- Start your capital
campaign. Many lenders require a capital
stewardship campaign to be in place before they will
approve a loan. A campaign will improve your
chances of getting financed or increase the amount of
loan for which you will qualify. Get your free
Church Capital Campaign Tips.
Getting a church loan is not easy, but
careful preparation and reasonable expectations usually win
the day. Follow these tips and you will get the church loan
or construction loan that you need... and deserve. For more information on church
financing options, including formulas for setting building
budgets, what you can expect from lenders, and information
comparing loans and bonds, we recommend the book, Preparing to Build.
Written by an experienced church
Preparing to Build provides
your church valuable, real-world insight based on real-world experiences and
input from hundreds of church building projects.
"Preparing to Build was an
incredible value - just a wealth of
information. The truth & his experience
jump off the pages."
Dwight VanDaveer, Engineer & Church Building Committee Member
With over 160 information packed pages, this
book will explain the process of building and how equip the saints for the
work of building the church in an effective manner that will reduce the
church's cost, risk and effort.
Click for more information or to purchase.