In my presentation about the various stages churches must go through to successfully pull off a building project I talk about getting a loan from a bank. I have a cartoon that shows a pastor in the bank presidents office. The caption has the banker saying, “When we say we have low interest loans we mean we have very little interest in giving you one.” While we might initially laugh at that too often it is true. The only ones who laugh at that joke are those that either do not need a loan or already have their loan. The rest of you know all too well that there is some element of truth to the cartoon.

One of the major road blocks in the last year for churches moving forward with their project has been acquiring financing. As the credit crunch hit last fall banks become much less willing to make loans. While it may be loosening somewhat you can still count on it being rough sledding. Here are some things that we regularly tell our clients when it comes to acquiring financing.

It will take you longer than you think. We had a church last year that was told by their bank that the loan they were applying for would have been approved within weeks before the credit crunch hit. Now banks, wary of Federal regulations and bad loans, are being much more cautious. Every application is being closely examined. What use to take ninety days is now taking double that time and sometimes more. Banks are simply not in a hurry. So start sooner rather than later to talk to lending institutions.

Avoid single source lending. Most churches never shop their note. That is a huge mistake. When projects run into the millions even a fraction of a percentage point can save your church thousands of dollars. Unless the bank president is your chairman of your board then shop around for the best rate and terms. While more difficult than a year ago churches can by shopping their loan save thousands of dollars for Kingdom use.

Present a picture of strength. Don’t just walk into the local banker with hat in hand and ask nicely if he will consider loaning you a few million. Put together a package that shows your strength. That package should include the following:

A. A brief background of the church
B. Financial information - show at least three years of budget receipts including any capital campaign
C. Membership information - show your consistent growth
D. Demographic information on the church membership
E. History of leadership - the longer the pastor has been there the better!
F. Project information - Summary of project costs etc.
G. Capital Campaign information - Give details of campaign if you have had it or if it is planned.

Your goal should be essentially the same as any business that is applying for a loan at the bank. By showing you are a good risk the bank will be more prone to first listen to you and finally to extend you a loan.

Pray! I put this last not because we typically get around to praying as a last resort but because it is the base of all we do. I am reminded of Proverbs 21:1 that says, “The king’s heart is in the hand of the LORD; he directs it like a watercourse wherever he pleases.” The bank loan officer is not a king but like the king in this verse God can move his heart. Take smart steps to prepare your loan application but bathe it in prayer!

As I talk to bankers around the country it appears that money is beginning to loosen up once again. However we can expect banks to be hesitant for at least the remainder of the year. Smart churches are not waiting for the sun to break out of the clouds or an announcement from heaven that banks are back in business. Smart churches are working now on acquiring the needed financing for their projects. What are you doing?

If you need help putting together your package for a loan that is something we can help you with. We are more than just a capital stewardship company. Call us today.

Mark Brooks
Founder and President
The Charis Group

The Myth: Churches should never go into debt.
The Truth: Properly used debt can be an effective tool for churches.

First Church bit the bullet and borrowed five million dollars to build their new family life center three years ago. Across town Faith Church faced with essentially the same project decided to pay cash for their family life center. Both churches embarked upon a capital stewardship campaign raising three million dollars.

First Church for the last two years has been in their new building. They are gearing up for their second capital stewardship campaign to pay off the existing debt they incurred. Faith Church is starting their second capital stewardship campaign and hope to be in their building in another two years. Their hope is to be able to be completely debt free at the time of the grand opening.

Which church took the right course of action? The answer is not as easy as you might think. At times and in some situations there are good arguments for each course taken. Yet often those that take the non debt route do so with a mistaken idea that their decision is the only biblical decision. Even in churches where borrowing is seen as a necessary option pastors and leaders are often bombarded by individual members who feel the church is entering into sin.

In the times that we live in it is almost impossible for churches to build without incurring some type of debt along the way. For me there are two major questions that need to be addressed.

Is debt unbiblical?

In some circles this is a raging debate. I find that those that hold that any debt at any time is unbiblical are almost beyond reasoning with. Perhaps we cannot win those people over. We can help others feel good about the decision we make regarding debt.

My friend Dr. Don Sweeting of Cherry Creek Presbyterian in Denver, Co. wrote this about debt. He said, “Some Christians think that believers should never borrow money to go into debt. They hold this conviction with regard to their car, their house, their business and their church. Other Christians operate no differently than the world, and they irresponsibly borrow up to their eyeballs. They borrow for things they should have paid cash for, like clothes, vacations, stereos, etc. They are haunted by it for a long time.

We, at Cherry Creek, believe there is wise middle ground that is biblically responsible, where debt is sometimes taken on and used as a tool with the intent to pay it back as soon as possible. That is the action we took this past summer.

It is interesting that the Bible verses most often used regarding debt are Romans 13.7, 8. The NIV renders it, “give everyone what you owe him” and “let no debt remain outstanding.” The only debt that is to remain outstanding is the continuing debt to love one another. Paul is not making a statement that it is wrong to borrow, but saying that when you borrow, pay it back!”

So, in answer to the question is debt unbiblical I believe the answer is, it depends! It depends upon whether the debt is a manageable debt. Does the debt so debilitate the church so that missions and other vital ministries are cut or curtailed? If not then I believe debt can at times in fact be good stewardship of God’s money.

Is debt practical?

There are times when it makes good practical sense to use debt to accomplish Kingdom work. Let’s take for instance the story we began with about First Church and Faith Church. One waited to build debt free while the other borrowed and began building immediately. It is my position that First Church actually was a better steward by borrowing than Faith Church. Let me explain.

First, you need to take into consideration the rising cost of construction and materials. You can count on at least a 10% increase a year. When we are hit with natural disasters like Hurricane Katrina you can add another 10% on top of that. Let’s take a simple 10% increase annually.

For example:
Project Cost Increase (10%) Per month
$1 million $100,000 $8,333
$3 million $300,000 $25,000
$5 million $500,000 $41,666
$10 million $1,000,000 $83,333

Secondly, you need to consider what the new building will mean in terms of growth. National statistics reflect that churches with new facilities grow on average 20% to 30% the first year. That equates out to about a 20% increase in giving income.

For example:
Annual Budget Income Increase (20%) Per month
$ 300,000 $ 60,000 $ 5,000
$1,000,000 $ 200,000 $16,666
$2,500,000 $500,000 $41,666
$5,000,000 $1,000,000 $83,333

Remember, the above charts are per year! Even if you took a much more conservative rate of increase you can see that delaying the building in the long run costs you more rather than saves you more. I recently had a church that waited three years to start on what they thought initially would be a $4 million dollar project. The low bid was $6.75 million!

In the opening illustration of First Church and Family Church two different courses of action were taken. By delaying their project Family Church lost potential growth without the new building and lost potential income that growth would have provided. To top it all off the cost of their new building increased at least 30%. What looked at the outset to be a good decision to avoid debt actually cost them more money in the long run and thus was a bad stewardship decision.

So, the bottom line is that at times debt is not only practical but it makes the best stewardship sense. The key is to find the wise middle ground for your church or ministry. Then you need a plan on how you will pay off that debt without it being a burden upon your budget. That is where a good stewardship partner like The Charis Group can help. A good plan of action can help you achieve the dreams and visions that God has given you.

Mark Brooks
Founder and President
The Charis Group

The Fed is doing all they can to keep us out of a deeper recession. As such they have lowered the prime to its lowest rate in years. So now is the time to take a look at the current rate you have and see if re-financing is right for you. While rates are still all over the board depending upon the bank, the health of the church’s finances and which way the wind is blowing on a given day, you might be able to secure a rate several points lower than your present rate. With a loan in the millions even a one point reductions can save you thousands of dollars a a month. Saving that money might mean keeping a particular ministry going or keeping the staff you have.

Here are some things to consider…

Don’t fall prey to single source lending. Competition is good for business and its good for you. Unless the local bank president is your chairman you would do well to shop your loan around. Line up several banks not just the current bank you have your checking account with. It isn’t personal its business and your goal is to save your ministry money.

Do your home work. While money is available it is harder to come by as a result of all the recent defaults and scandals. So, think about putting together a package for the banks that shows your strength and why you are a good risk for their business. You might assemble a group of lay leaders with business expertise to help in this. My advice is not to go to the bank with hat in hand begging for a loan. Go presenting your strengths. After all you are the client and it is the bank that should want your business. So, make yourself look attractive.

Show stability. What banks will look for are strong financials. You should be showing how your giving has grown and remained strong despite the recent down turn. Show growth and stability and you will find plenty of takers for your business and get a better rate. If you can not show a strong financial picture then your rate will be significantly higher. This is why we have been recommending to our clients that they close out the giving year as strong as possible. Everyone knows giving is down. What do you think your banker will think if he sees your giving has continued strong?

Cash reserves are huge. I use to think churches with huge cash reserves were not doing anything for the Kingdom. While that might be a reason, now banks are looking for churches to have a large cash reserve. The more money you have in an account the better your chances for securing a loan.

Don’t give up! You will find that it is taking longer and you will have to jump through more hoops to get a loan. Do not get discouraged and give up. It will be worth the efforts to save the thousands of dollars yearly that can be put back into ministry.

You can go to our website and click on the button that says, “Free Financial Analysis,” to find out what your loan ability is. We have had several clients use this source and ultimately save thousands of dollars a year on their loans. It never hurts to investigate. Be a wise steward by not paying thousands of dollars needlessly when a lower rate might be available.

If we can help with this process please contact us.

Mark Brooks
Founder and President
The Charis Group