Step 4 of Church Building – Financial Analysis and Loan Documentation
Today we are talking about Step 4 in our 10 Step process of your church building. It will help move you out of the temporary facility you are meeting in and into a permanent church building of your own. If you have outgrown your existing facility and you need to expand or relocate, this step is essential for you, too.
Step 4 is doing your financial analysis and getting your loan documentation in place.
You want to do this right up front because there is nothing worse than going out and falling in love with something like a house. You go out and you find a beautiful home. It is in a great neighborhood, with a good school district. It looks like the neighbors are all friendly and you would love to live there. You quickly get mentally married to it, only to find out the house is way beyond your financial capacity; and you are heartbroken. You should have gotten pre-qualified for a loan before you began your search for a home.
It is the same way when you are looking to buy land to build a facility or for a building to move your church into. You should know what your financial capabilities are so you know what price range to look in, and then stay within those parameters, right?
One thing you have to really watch is that banks will often tell you that they will lend you a certain amount of money. Well, maybe they will and maybe they won’t. I have lost track of how many churches I have worked with that have gone down that road. The bank says they will lend you $3M or $5M or whatever, so the church goes out and hires an architect, and spend hundreds of thousands of dollars on drawings to design a great facility. Then they return to the bank to get a loan and the vice president of the bank, you know the one who promised how much the bank would lend them, doesn’t have the authority to lend it. “Gosh Pastor Bob, I would give you the money. I know what a good guy you are. You are a client here and boy, if it were up to me I would give it to you. But you know there are new regulations that really handcuffed us and we just can’t do it. The loan committee has met and you just don’t meet their criteria,” he stammers.
So, before you go very far in the church building development process, make sure you know exactly what you are able to do. Consider your possibilities with a fundraising campaign or a combination of fundraising and borrowing and find out a realistic number. And get it in writing from a bank or credit union so that you don’t end up with a set of architectural drawings that you can’t afford to build.
Churches all over America do this every single year. One year I had five different churches come to me and say, “Brad, can you help us? We hired this architect, we designed these drawings, we thought we could afford to build it. Now we find out that the bank won’t lend us money, we can’t get the funding to do this, what do we do?”
If you take the dollar value of those five sets of drawings—just what was spent on the architecture, it was more than $1.5 million. And all of those drawings had to go in the trash and the church had to start over. Before you get too far, make sure that you are working with a bank that will actually fund your project. Don’t take their word for, okay? There are nice, honest guys out there, but if it is not in writing – it does not exist. So make sure you get a loan amount commitment in writing based on specific terms and conditions.
Most denominational lenders, Evangelical Christian Credit Union, Bank of the West and lending organizations we work with will lend on two conditions. First, they will not give you more than 75% loan-to-value on the final product. That means whatever your final building is appraised at, they will only lend you 75% of that amount. The lender wants you to have skin in the game, so you will have to come up with the other 25%. We have a lot of creative ways of how to get the 25%. We can guide you on how to get the money. The second thing lenders do is to only lend you is three times your annual operating budget. So if you have a $250,000 annual budget, the most you’re going to be able to borrow is $750,000. So just do the math for whatever your operating budget is. Remember that both conditions have to be met, not just one.
There are many creative financing avenues available, and there are different things that we can do to get small churches into phase one buildings. You can download an e-book on our website called Debt Free Development. It’s a free resource that I put together for you. It shows how we go about helping churches just like yours to move into brand new, custom designed facilities while remaining debt-free.
Be sure you take all of the steps in order before going out and paying an architect hundreds of thousands of dollars to develop a set of plans. Especially before you show drawings to the congregation and get everybody hyped up, only to have to turn around and throw the drawings in the trash. Let us guide you through each step of your facility development.
Call me now at 719-439-3019. I can help you avoid the pitfalls of facility development. I look forward to talking to you.
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