Commonwealth Church Finance

Fundamentals of Church Borrowing . . .
What About Balloons?

We often ask our commercial lender if they have 20 or 25 year fixed rates.  The answer is almost always a resounding “Yes!”  The reality, often, however, is quite different.  Below, discover the secret that many commercial lenders do not want you to know . . .

Beware!  Big Balloons May Be Coming!

How Are Commercial Loans Often Structured?

When we ask our commercial lender for a long term, fixed rate loan we are often greeted with “We can do that!”  Later, however, we may discover that what we were expecting to receive was not, in fact, what we were receiving.

Here are some realities of the current banking environment:

• The uncertainty of the economy does not allow most lending institutions to lock interest rates for the life of the loan. They do not want to be “caught” with loans outstanding at below market rates.

• Today’s reality is that most lending institutions are primarily concerned with “liquidity”, that is having sufficient cash and liquid reserves to stay off the FDIC and State radar screens.  Loans to churches do NOT improve a banks “liquidity” position. Rather, they worsen it.

• Many lending institutions will lead the church borrower to believe that they have a 20, 25 or 30 year loan.  This means that the payment is calculated based upon an amortization over one of the above periods of time.  The interest rate, however, is often fixed for a much shorter period of time – often only 2 to 5 years.

• When the fixed interest rate period expires, the loan may or MAY NOT be “renewed” by the lender.  If they do choose to renew the loan, it will be at the prevailing interest rate at the time of renewal – almost certain to be higher than your current lending rate.

• Insecurity Clause – Does your loan documentation contain an “insecurity Clause”?  This clause allows your lender to call the loan due if they just believe that you may not be able to repay! Your payment history will not prevent the “insecurity clause” from being invoked.  Many churches have learned this bitter lesson during the current economic climate.  Their lenders assume that the current economic climate is sufficient cause to believe the church may not be able to repay the loan.

• Did you know that a one percent (1%) increase in the interest rate of a loan to your church amortized over 20 years will result in a PAYMENT INCREASE of nearly 10% over what you are currently paying? A 2% increase nearly 20%, 3% nearly 30%, etc.

Commonwealth loans provide your church FIXED INTEREST RATES FOR THE LIFE OF THE LOAN!  Don’t get caught when interest rates begin to rise!

CALL COMMONWEALTH CHURCH FINANCE TODAY!

Commonwealth Church Finance
“Financing America’s Churches for 29 Years!”
(800) 473-4124
info@commonwealthchurchfinance.com

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

“WE NEED TO……”

(Build, Move, Refinance, Renovate)

These are some of the most exciting and frightening words that can be uttered at the church board or leadership meeting. This is when you open the door to the maze. No two mazes are the same, but there are common elements. This guide can be an important reference to help you “navigate through the maze”.

Maze:(noun). Something made up of many confusing or conflicting elements.

Commonwealth Church Finance has been assisting churches and non-profit organizations with their financial needs since 1981. Let us assist you as you pass through the financing maze.

Step 1: The Big Picture

Such a critical, but often neglected area is the “Needs Analysis”. You should always be thinking “The Big Picture”. Let us assist you in considering:

• Space Needs – both now and later
• Regulated Requirements by Local Authorities (there are more than you may think!)
• Growth Curves
• Ministry and Outreach
• Your Vision

Step 2: Counting the Cost

Common errors and hidden stumbling blocks can slow progress, frustrate and even stop a building, remodeling or relocation project. You may rely on your CCF consultant to guide you through the maze and allow you to benefit from experience gained in working with hundreds of churches across America for more than 25 years.

Luke 14:28-30 says it best:“For which of you, intending to build a tower, sitteth not down first, and counteth the cost, whether he have sufficient to finish it? Lest haply, after he had laid the foundation, and is not able to finish it, all that behold it begin to mock him, Saying, This man began to build, and was not able to finish.”

Step 3: Beware the “Fast Food” Mentality

Many ministries fall victim to the “We Need It All Now” syndrome. CCF will guide you through the maze of planning a project that compliments, rather than conflicts with, your budget and ministry needs.

Scores of thousands of dollars may be saved using wise counsel and taking the time to properly phase your project. Part of our service is analyzing your growth and borrowing ability prior to your committing funds to outside professionals.

Step 4: Be Aware of the Proper Sequence of Events

All too often, ministries needlessly spend thousands of dollars for architectural plans which design structures for which the ministry is unable to financially qualify to build. Your CCF consultant will assist you with:

• Scheduling each aspect of your project to maximize the use of your funds, while minimizing wasted time and money
• Reviewing the qualifications of your building, legal or financial professionals to help assure they are capable of doing it right the first time
• Maneuvering through the maze of federal, state, county or municipal regulatory requirements which may negatively affect your project and drive up your costs. Among these regulatory requirements are environmental concerns, building codes or other local regulations

Step 5: Understanding Cash Flow

Ministries are typically ‘not-for-profit’ in more ways than one. Every penny that comes in is spent. While this is great for ministry, it is destructive to a ministry’s borrowing potential. Your CCF consultant will walk you through the maze of financial truths. Your borrowing power will be analyzed, strengths and weaknesses discussed, and action plans developed to address the short- and long-term needs of your ministry.

Step 6: Making it Come Together

Some ministries only want or need assistance here and there. Others depend on a full spectrum of services and guidance: From assessing your need to working with local planning departments and all the way through project completion.

CCF is ready to serve you in any part of the process… or every step of the way!

Step 7: Choosing a Guide

So… you’ve heard “We need to…” and you’re ready to get started. Are you ready to make the journey through the maze as painless and smooth as possible? Contact us today. Our consultants are ready to help you through the maze associated with church and non-profit financing.

Toll Free: 1.800.473.4124

Local: 678.583.9760

What happens next?

This is the single-most asked question by church leadership after entering into an agreement with Commonwealth. By partnering with CCF, you will receive assistance with:

• Progress tracking of your financial program progress
• Assigning responsibilities to others during various phases of the program
• Communicating with the leadership of the church
• Planning your calendar/job assignments for the entire program process

Let’s Get Started!

Commonwealth Church Finance is happy to serve you! Contact us today!