Truth About Church Loans Part 2

Enthusiasm is contagious.  When churches start discussing expansion, excitement fills the air, and visions of the “possible” often override the “practical.” During these times of blessing, caution and good stewardship mustn’t give way to over-zealousness. Not every suggestion, idea, or plan presented is in your best interests, and this includes input from professionals.

The hard truth is that lenders and builders, as friendly and enthusiastic as they may be, have incentives to loan more/build bigger, but you may be tempted to believe they are your best and selfless advocates. Rest assured, they work for or operate businesses for-profit. They are not charities and you do not want them to act as charities. Profitable businesses are sustainable and are naturally incentivized to provide top-notice service. However, a “good deal” is only a “good deal” if it is good for all parties now and into the future. 

The church carries the responsibility of making wise decisions
This is not meant to tarnish or sully the reputations or intentions of very good people, or to insinuate that they are out to make a quick buck. Lenders and architects are honest, hardworking people influenced by emotion just like everybody else. The bottom line, however, is that long after the sale has been made, the church will still be responsible for whatever agreements the church has obligated itself to. Your friendly loan officer will not be making the payments on your behalf.

When budgeting for a new facility, expansion, or property, churches need to perform the following due diligence.

  1. Pray for wisdom. This is a big, but exciting decision. Start on the right foot!
  2. Consider a specialist. Consider choosing a lender or builder that specializes in church facilities. Sometimes, denominations have preferred institutions they are affiliated with. Church loan and facility specialists often do become spiritually invested in the missions and ministries of their clients.
  3. Establish boundaries. Make sure your lender and builder know your financial limits.
  4. Get multiple opinions. This may seem like common sense, but often churches simply trust a single referral from a church member that “had some work done,” or from a member that “knows a guy,” or from “a friend at the bank.”  Talk to more than “expert.” 
  5. Determine your healthy debt-level. Sometimes the best approach is to go with a smaller amount of debt (See: The truth about church loans: Part 1: How much debt is acceptable?). In relation to your overall budget, your proposed annual debt payments should be no more than 30% of annual unrestricted tithes and offerings. Make sure your church is fully committed to a 15-20 year term and that you’ve given thought to the congregation’s ability to give in the future.
  6. Avoid balloon notes. These common loan types require the church to undertake costly refinancing every three or five years to avoid a massive balloon payment.  

Eden Religious Facilities has extensive experience helping congregations budget for growth and expansion and we work with your best interests in mind. Additionally, we can help you estimate the size and needs of your new facility. 

Contact Eden Religious Facilities to speak to one of our advisors.