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Step 9 of Church Building – Construction Financing & Mobilization

Step 9  is Construction Financing in how to equip you to move your congregation from temporary facilities—at the Y.M.C.A., theater, or school into a permanent facility using ‘Your New Church Building and Design In 10 Easy Steps.  Or maybe you have outgrown your existing facility and you need to expand, remodel or relocate it. This information is for you.

How do you get Construction Financing? How do you know whether you are getting the best deal? And how do you set that all up? You can download the free e-book: ‘Your New Church Building and Design In 10 Easy Steps‘ and learn all about Church building design and Construction Financing in Step 9. Let’s look at some of the details here.

There are a lot of different ways to finance construction projects. Most people just go the traditional route. They go to the bank and say, “Hey, Mr. Banker, we need to borrow a bunch of money to build this building,” and the bank may or may not give them a construction loan. Then they draw on that loan,  paying interest with each draw. At the end of construction of the building, the loan is flipped to a mortgage, sometimes referred to as a take-out loan. Most church constructions projects in the United States are done that way if traditional banks are used.

In 1985 we helped set up the church loan division at Bank of the West. At that time, banks were not lending to churches because they felt that lending to a nonprofit was very risky. They worried that if they had to foreclose, it would be the big, bad bank foreclosing on the poor nonprofit and that would be a public relations nightmare. Bank of the West, Wells Fargo, and Crocker Bank—none of the banks in the Bay Area in California would lend on any of our church projects. The two banks that would were Sumitomo and Sanwa. For them it was business. So we did a lot of work with Sumitomo and Sanwa, but they charged a lot of points up front and charged several points above the prime interest rate. It was expensive.

Eventually, I put together a bunch of different churches and went bank shopping together. We had a group of about ten large churches that had about $3M annual operating budgets. Bank of the West said, “Brad, that is impressive, but we’re not going to do it.” Nobody would talk to us and I thought, “Maybe we need $50M.” So I started bringing in other churches. When I went to a church called Church of the Highlands in Millbrae, California the pastor said, “Oh, we don’t have a problem with borrowing because the president of Central Bank is the Chairman of our Elder Board.” I made an appointment with him at their office on Treat Drive in Walnut Creek. We sat down and I explained what I wanted to do and he said that they would absolutely help us! Within a couple of months, we put a lot of money into Central Bank in Walnut Creek, California and it went great!  That bank funded our projects at a reasonable rate for points and fees on the construction loans, and gave us competitive interest rates. It was great for about four years!

Then Bank of the West bought Central Bank and the first thing they did was close down the church lending department, which killed all my projects. I had to go back to the Japanese banks with the high fees and interest rates. So I set up a meeting with the Board of Directors at Bank of the West explained what had happened. They gave me the pat answer: We don’t lend to non-profits.

About six months went by and I got a phone call from the vice president at Bank of the West, and he wanted me to come up and meet with the Board of Directors. When I met with them they wanted to know about the church development business in California: how big it was and such. It turned out that after Bank of the West acquired Central Bank, they brought in auditors to go through the specialty accounts. The number one performing account that Central Bank had was their church loan division. It outperformed everything! And Bank of the West wanted to reopen it as quickly as possible.

Within a couple months, the church loan division was back in business.  It started out in California and spread to Washington and Oregon, and the eleven western states. Now they do funding for churches all across America and have billions of dollars in church loans out there. Persistence paid off.

Banking is only one option for Construction Financing. Another option is using my friend Scott Rolfs at B.C. Ziegler in Milwaukee, Wisconsin. They do church bonds, which is a good option. Charles Major at Share Financial Services in Dallas also does church bonds. We have worked with Charles and Scott for over 20 years. We have done bond programs all over the country. It is a very effective way to generate the funds you need. It works by borrowing from your own congregation. Your congregation can buy the bonds, as many as they want, and then Share Financial or BC Ziegler will sell the balance on the open market. There are investors all over the country that put their money in church bonds. It is a great way to fund a project. It is a little more expensive up front because you have to set up the entire bond issue, but then you are locked in for the life of the loan. It is fully amortized for as long as the loan is, up to twenty years.

Banks do not lock in interest rates. At the most, you can get a five-year lock, which means that at the end of five years you have to refinance into a long-term loan. (The bank wants you to do that so they can just adjust the interest rate to whatever the current interest rate is.) Currently, interest rates are still historically low. We are getting bank loans at four and a half percent. It is phenomenal. If you have a loan that is four and a half or less, lock it in for as long as you can now, because odds are that the rates are only going to go up.

Another way to do Church Construction Financing is to set up a line of credit with the bank and draw on that line of credit while your construction is happening. At the end of construction, you take the total amount of the line of credit and flip it into a mortgage.

There are a lot of ways to finance your facility. It is a little complicated, like when you buy a house; the banks are going to want more information than you could possibly imagine. A typical loan package that we put together for a church is about an inch thick. We know exactly how to put it together and the banks appreciate that we have everything required when we first go in.

I can help you secure your Construction Financing. Call me now with any questions you have at 719-439-3019. And download the free e-books to learn how to get “Your Church Building and Design In 10 Easy Steps”.


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