Financing America’s Churches Since 1981!

Commonwealth Church Finance

Fundamentals of Church Borrowing . . .
What Do I Need To Know?
Churches are not really much different than individuals or businesses when it comes to decision making by lenders.  Lenders are looking for churches who have the demonstrated ability to repay their mortgage debt and who have sufficient collateral “just in case” there should be a repayment problem.

What Do Lenders Look For When Making Church Mortgage Loans?

Of what, specifically, should I be aware?

Lending / Borrowing Criteria

All lenders have certain criteria upon which they base their lending decisions.  Here are some general examples:

Collateral or Loan to Value – Lenders will typically lend a church up to 75% of the appraised value of the collateral. With construction projects, some lenders may consider only the value of already existing collateral while other lenders may consider the added value of the proposed
construction.

 Cash Flow – Lenders must be shown that the church has the ability to make the loan payments from its existing (not proposed or proforma) cash flow. In other words, the church financial statements must show sufficient cash surplus and/or non-recurring expenditures to demonstrate the ability to make mortgage payments.

Annual Church Income versus Amount to be Borrowed – Most lenders have an amount with which they are comfortable lending to a church when compared to the church’s annual income. That amount may be as much as four (4) times the church’s annual income.  However, a “healthy” church will typically borrow no more than three and one half (3 1/2) times the annual income of the church.  e.g. A church with annual income of $1,000,000 may be able to qualify for borrowing as much as $3,500,000 to $4,000,000.

Debt per Attendee - Many lenders will analyze the amount of debt the church will be incurring versus the number of regular attendees. The “healthy” church will typically have no more than $3,500 – $4,000 debt per average attendee. That is not to say that this amount couldn’t be higher, but as a rule of thumb, these numbers work for “healthy” borrowing. For example, this criteria would allow a church with normal attendance of 500 per Sunday morning service to qualify for $1,750,000 to $2,000,000.

It is important to realize the above criteria are only general guidelines.  Different lenders have different qualification criteria – some more conservative and some more liberal. Additionally, churches may be allowed some leeway in one or more of the above criteria if they are unusually strong in the others.

Luke 14:28-30 is God’s Blueprint for Success when planning a church building project. . .

• Sit down – take the time!

• Count the cost!

•  Will we have enough to finish?

Commonwealth Church Finance

email us at:  info@commonwealthchurchfinance.com

Phone us at: (800) 473-4124