Financing Options For Church Construction

Financing Options For Church Construction



Financing Options for Church Construction
Financing church construction is, for some churches, a​ very easy task while for others it​ is​ a​ source of​ never-ending frustration .​
We could expound on some of​ the factors that might place your church in​ one group or​ the other later, but let’s instead review the three major methods of​ funding church construction, along with their benefits and drawbacks.
The three major methods of​ funding (in part or​ in​ whole) church construction are conventional lending, bond offerings and capital stewardship campaigns .​
Of the first two, loans and bonds, each is​ available in​ a​ variety of​ flavors .​
While it​ is​ true that capital campaigns can be used as​ a​ funding source, they are more infrequently done as​ the sole funding source than loans or​ bonds .​
Capital stewardship campaigns are typically done in​ conjunction with a​ loan or​ bond .​
More on that later…
A conventional loan is​ one where you will go to​ a​ direct lender or​ broker and get a​ construction loan based on the future value of​ the facilities you are going to​ build, using your assets as​ collateral .​
In a​ conventional loan, you are essentially borrowing all the money from one lender .​
Construction loans usually can be easily converted into mortgages at​ the end of​ construction .​
Many lenders will allow you to​ do this without a​ separate closing at​ the time the loan converts.
A bond is​ a​ (generally) public offering for many people to​ loan you money by purchasing bonds .​
Your church would deal with a​ bond company who specializes in​ putting together and promoting the offering and as​ they sell the bonds, the money becomes available to​ your church .​
For both conventional loans and bond offerings, the amount of​ money that you can borrow is​ going to​ be limited by your current income and cash flow .​
One of​ the common financial rules of​ thumbs is​ that the church can only afford to​ borrow (read will only be able to​ borrow) between 3 and 4 times their current earnings .​
If the total church income for the year is​ $150,000, your borrowing capacity is​ probably only $450,000 to​ a​ maximum $600,000 .​
Other factors that can affect your borrowing capacity are cash flow and equity .​
Regardless of​ bond or​ loan, the lenders are going to​ need to​ be able to​ see how you will make the payment from your current cash flow.
It is​ one thing to​ get a​ loan, it​ is​ quite another to​ retire it .​
With very rare exceptions, shame on the church that takes 20 years to​ retire a​ loan! Most churches should have a​ workable plan to​ retire their debt in​ 7 years .​
Interest is​ money that the church gives to​ the world to​ foster the world’s economy .​
That money should stay in​ the Kingdom to​ finance Kingdom work .​
This brings us to​ our third form of​ financing, Capital Stewardship.
A capital stewardship campaign will typically raise between 1.5x and 3x your church’s current total income, over a​ 3-year campaign period .​
Over the past several decades, thousands of​ churches have executed professionally facilitated campaigns .​
The result is​ a​ large statistical universe from which we learn that the majority of​ these churches raise the 1.5 to​ 3 times their current income: an​ analysis that mirrors my own experience in​ working with churches .​
There are 3 ways that a​ capital campaign can help fund a​ building program .​
Some churches may desire to​ avoid debt and to​ save up for construction .​
Others may opt to​ augment their borrowing capacity with additional funds from a​ stewardship campaign .​
Lastly, many will choose the middle road of​ using a​ capital stewardship campaign to​ pay off their debt as​ quickly as​ possible .​
This third method is​ the most prevalent .​
A capital stewardship campaign should easily pay off ½ or​ more of​ the churches construction debt in​ three years .​
My position is​ that if​ the church can retire half of​ their debt in​ three years, they should certainly be able to​ retire the remaining half over the next 4 years .​
I​ say this, as​ I​ believe that the church will grow numerically and financially over the period of​ paying off the debt, and it​ would certainly have the option of​ executing a​ 2nd capital campaign at​ the conclusion of​ the first .​
Hopefully the church will be considering its next expansion plans before the end of​ the 7 years, which is​ a​ very good reason for becoming debt free as​ quickly as​ possible .​
(Excerpted from the eBook Before You Build, by Stephen Anderson, available on the ChurchBizOnline.com website.
Steve Anderson is​ a​ church building consultant, contributing editor for Church & Worship Technology Magazine and author of​ the forthcoming eBook, Before you Build: Practical Tips & Experienced Advice to​ Prepare Your Church for a​ Building Program.




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