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Getting a Church Loan: Mortgage or Construction Loan

A church loan is pretty much a necessity in any church construction project. 

Before 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.

Free Download: Two Key Requirements to Qualify For Church Financing (as seen in Executive For Christ Magazine)

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 debt. 

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 loan for 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 financing options. 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 possible.

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 church building consultant  or church loan broker (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 independent church consultant or loan broker can help prepare the complete financial package that will help you get the best church loan.

Three things to do months BEFORE you apply for a loan.

  1. Reduce Expenses. Take a sharp knife to the expense side of the budget.  Consider it as dressing the vine to get a bigger harvest later.
  2. Increase Regular Giving. To Quote Dr. Rogers, "Thar's GOLD in them there pews!" We recommend the Dynamic Giving Annual 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.
  3. 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 copy of 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.


Church Building Guide


Written by an experienced church building consultant,

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.


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