As a steward and leader of your congregation, we are sure you have asked yourself this question many times.
In fact, it probably weighs heavily on your heart because you don’t want to let your followers down.
You never imagined you would be up all night stressing out about how to find the best church loan financing.
You would much rather be focused on reaching out to new believers and spreading the word of god.
But more than anything, you want to focus on saving people.
The first step, and the most important one, is to be sure your expansion plans are in line with your church’s vision.
If so, than god is likely calling out to you to expand your kingdom.
We have seen some amazing examples of god guiding ministries to plant new churches, give away members and create innovative modern campuses.
These trends among growing churches are galvanizing followers around the world to share the message of the gospel.
Make no mistake, banks and other sources of funding are there to make money.
But whether it's a church or any other type of commercial property, if they believe in your story, they will be willing to lend.
"They tell me a church is not like a regular business..."
And even though that is true, your ministry still has to have its finances in order and be well managed.
For instance, we have seen pastors and finance committees try to present yearly income totals that include both designated and undesignated tithes and offerings together.
That is a major red flag that violates trust and ends with lenders walking away from any chance of funding a loan.
(Only undesignated tithes and offerings should ever be considered with normal income.)
Your lender will also look for these key signs of your sanctuary's health, whether you lead a newly planted site or a megachurch.
That's why most successful leadership stewards work with a strategic partner like Whista.
We understand how to work with lenders and communicate your long term vision.
Every congregation has a different level of financial health, it's own unique mission and it's own difficult set of challenges.
But there are some common church financing guidelines you need to know before you get serious about your ministries expansion funding.
You realistically should not be spending more than 35% of your church’s monthly budget on mortgage payments.
So let's say your annual operating budget is $1,000,000, you would be able to look at a loan amount of around 3 to $3.5 million.
Another 35-40% will normally go towards ministry salaries, while the remaining is for general expenses.
And just so you are ready for it, that salary percentage always seems to come as quite a surprise to most commercial banks.
It's for this very reason that many churches like to work with faith based lenders.
They are familiar with culture of giving and therefore often better equipped to fulfill the long term needs of a holy community.
These lenders want to see positive cash-flow and a high DSCR.
This means a solid current ratio and a debt service coverage ratio of at least 1.20.
The current ratio is good measuring stick of your ministry’s liquidity.
In a nutshell, it is your current assets divided by your current liabilities.
For most churches, the average is around 2.5.
The DSCR or debt service coverage ratio is a bit trickier to calculate.
Put simply, it provides an indication of how easily your church will be able to make it's yearly loan payments.
It seems that every lender, including faith based lenders, have their own way of calculating the debt service ratio, so be sure to be conservative with your initial estimates.
The amount of your new loan should not be more than 60-70% of the value of existing property.
This is called the LTV or loan to value (and lenders really like to talk about it...a lot.)
So if your current facility is worth $1,000,000, than your loan limit would be between $600,0000 and $700,000.
But what does this mean for you?
It means you are probably going to need a down payment of around 30%.
You have to ensure your members understand what god has asked of you and your ministry.
What's the best way to do that?
By having a well run capital stewardship campaign.
It is absolutely key to a successful long term growth plan.
The fastest growing churches know how to create genuine buzz that galvanizes their membership and brings them together behind a united vision.
This message should be focused on saving people, cultivating a spirit of stewardship, generosity and giving away ministry.
Make sure to include your members in every aspect of the project.
They need to know that any borrowing for expansion is rooted in a biblical motivation to spread the gospel of the lord.
Clearly explain why the project is needed and the costs that will be involved.
For example, you can really excite a congregation by showing them well crafted videos or renderings of the proposed projects.
This provides a visual manifestation of your vision that can make a tremendous impact.
You must choose a loan that you feel comfortable with.
This means making sure that you understand the terms and that they are the right fit to ensure your kingdom’s longevity.
Be sure to talk to your loan adviser so that you know the answers to these important questions:
From appraisal fees to compensation balances, you need to know these costs before signing for a loan.
Maybe you have a small congregation with a relatively low property value. In this case you may opt for a longer term loan with a fixed rate.
A situation with a higher property value may call for a variable-rate loan with a shorter term.
It really just depends on what's best for you church's financial health.
We are here to help you answer all of these questions.
And hopefully to provide you with another tool that allows you to spread your ministry far beyond its current reach.