The vast majority of banks have emerged from one of the most difficult periods in recent history somewhat battered and bruised, but fundamentally sound. Banks have plenty of capital to lend to credit worthy borrowers. For churches, credit worthiness is highly correlated to the “right size” of a new building project. In the past few years, historical norms for prudent loan amounts were set aside by both lenders and borrowers, with disastrous results.

Banks and churches alike need to refocus now on long established metrics regarding appropriate loan amounts. Churches that are planning expansion projects based on what they can afford based on historical results versus what they hope to be able to afford in the future will find a number of lenders willing to provide financing.

Appropriate debt level

What is the appropriate level of debt for a church? The answer lies in the past. In order to determine an appropriate level of debt one needs to review the church’s revenue and cash flow (amounts and trends) over the previous three years. An experienced church lender will arrive at an appropriate level of debt based on multiples of revenue and historical levels of cash available for debt service, among other factors.

As an example of a common scenario, if a church’s tithes and offerings were $2 million in each of the last three years and are on pace to reach that in 2010, it would appear that church attendance is at capacity. In this example, the church might be offering two or three weekend services, with the primary services filled to capacity most of the time. This would support the church’s contention that it needs to build a larger sanctuary in order to grow its congregation.

Based on the income numbers alone, this church may qualify for $5 to $6 million of total debt. However, the answer to how much debt the church can borrow hinges on an analysis of the church’s historical cash flow and of any recently started or planned capital campaign.

If this church has collected $2 million in each of the last three years but has spent 95 percent of its income on salaries, operating expenses and programs, the church won’t be able to demonstrate that it has historically generated the net cash flow it will need to service the new debt.

It would be unreasonable to expect that the church would cut staff and other costs when they are expanding. When planning new building projects churches need to start budgeting and reserving for future debt service a year or so before they plan to borrow. Otherwise, churches are essentially betting on an unforeseen future event to fund their new debt service requirements.

Capital campaign

The exception is when a church has recently started, or plans to start, a professionally orchestrated capital stewardship campaign. Experienced church lenders know that professional campaigns generally produce anticipatable results. It is reasonable for a church to look to a capital campaign to bridge the gap between what they could afford based on historical basis and what it will take to service the post-campaign indebtedness.

One of the key considerations is whether the proceeds from the campaign will be sufficient to pre-pay a portion of the loan to a level that historical cash flow could support. In other words, a capital campaign can pump up a church’s borrowing capacity for the near term but should not be relied upon for long-term debt service. Churches are typically not able to rely on donations expected in future capital campaigns to support debt service unless there has been a history of back-to-back campaigns during times with no expansion.

Experienced church lenders will want to see the results of the first few months of a capital campaign. They will also look at pre-pledge giving per attendee. If church members have been giving at a high sustained rate based on geographic and demographic factors, the lenders assumption regarding the likelihood of a 100 percent pledge collection rate may be impacted. Well established church lenders may have guidelines regarding giving per attendee.

If churches take a conservative approach to how much they can afford to build, they should have no trouble finding a lender. Further, interest rates are again near historic lows so now is an excellent time to consider expansion. Banks have capital to lend and would be only too happy to see their funds put to good use.

Some banks offer 10-year fixed rate loans at very low interest rates. It would be worthwhile for many churches to refinance their existing debt in order to lock in a new 10-year fixed rate now, rather than waiting a few years until the loan matures, by which time rates are likely to be much higher. For the appropriately positioned church, now is an optimal time to borrow for expansion or refinance. A prudent church lender will be in the market and ready to help.

Marianne Berlan is VP Church Banking Analyst, Church Banking Division, Bank of the West, Walnut Creek, CA. 
 www.bankofthewest.com

Building costs decline as much as 23 percent over three years ago, while major gifts are ‘back in play.’

Is this the time for a church to be building? Jobs are being lost and families are rethinking their pledges to their church’s budget. Even as many are having difficulty with their own home mortgage much less be financing their church’s new home, one person in the building trades says the present time is “an incredible opportunity for the faith-based building sector.”

David Hatton of Churchworx sees it from the point of view of a dedicated churchman and one who’s worked many years in the building trades, focusing on church construction.

“Building a church project in these ‘uncertain’ economic times is both a very smart use of God’s money,” he says, but — and here’s the clinker  — “requires an extraordinary vision, faith and leadership from the church’s pastor, staff and members.”

Value for the dollar

Hatton, who is based in Texas, says that projects in Dallas and Houston are experiencing a “total project delivered” cost decline of 19 to 23 percent today against 2007. “That translates into the fact that for every dollar spent, a church will realize $1.30 worth of total project in-place value,” he says.

That’s the dollar number that First Baptist Church of Dallas is using as they begin a capital campaign this spring and look to breaking ground in July on a $130 million project that is the largest, by far, church project in this country if not the world.

The $6 million overall project cost for Crossroads United Methodist Church in Oakdale, PA, near Pittsburgh, is small by comparison, but no less challenging for the congregation in these times. Senior Pastor Steve Cordell says that “obviously, the economic climate was on everyone’s mind. We knew that people’s assets had been deeply impacted by the falling stock market and uncertainty over jobs.”

The church of 1,100 has five live services and two video venues and the facility has reached capacity. But they have a vision of having 10 campuses “and the congregational excitement about our opportunities in Mozambique was growing,” Cordell says.

He admits that the $6 million cost was “rather daunting for a church with a $1.25 million general budget.” Working with Generis campaign experts, they took their project in two phases, and the first phase was a huge success. “We surpassed our goal of $750,000 over one year by receiving pledges of $1.2 million, with 90 percent of the church participating,” Cordell says.

Several things made the difference for this church’s success, says Cordell: obvious facility need, communication of the need over a year, strong buy-in to the overall vision, a momentum and unity in the congregation — and God’s grace.

Brad Leeper of Generis says that the phasing in of plans makes sense for some churches. “Because most churches will be unable to secure lending for a larger project in the short-term, some of these churches are using a smaller giving season in a campaign to tackle a portion of the project to prepare for the larger project hopefully in the next year.”

Taking first step

Crossroads, for example, decided on the two-stage Mission Expansion Project that allowed them to make progress toward their goal without incurring any debt — in fact, reducing the debt. They bought the property, started a new campus, covered soft cost preparatory work, furthered their work in Mozambique, and did some debt retirement.

Not moving ahead on the project, and not phasing in the work, has another impact, says Brad Leeper. “The other option is to remain silent before the church and that silence will get a church no further down the road with their mission.”

Lifepoint Church in Fredericksburg, VA is just five years old with 650 people, including children, attending in school facilities, where the school district is raising their rental rates a flat 10 percent for every 12 months they occupy the school, meaning that before long the church has to move.

Executive Pastor Jeremy Pickwell says “we knew what God wanted to do in the Fredericksburg area, and we simply used deductive reasoning to reach a timeline.” But, he notes, “The timeline just happened to fall in the middle of one of the worst recessions on record.”

Still, Pickwell says they saw the “opportunity cost.” Interest rates were historically low, “and with input from Cogun and Bank of the West, we quickly realized that commercial real estate loans are beginning to reset and vacant ‘big box’ buildings are becoming more prevalent and affordable.”

No doubt on timing

In the end, he says, when the decision was made there was zero doubt about the timing. “Our goal was $1.5 million,” he says. “God’s economy allowed us to see commitments of more than $2.4 million. Obey what God says, he is in control.” Says Generis’ Brad Leeper, “Rather than purchasing land, paying it off, then building — a five-year course perhaps — they are purchasing empty retail space at a discounted rate and then raising funds for the renovation. They can secure greater square footage and get into the building much sooner and without the expense of the infrastructure that raw land requires.”

While Pickwell says that God is doing something special, he affirms that “there is a difference between faith and foolishness.” The church is looking now for a new space. “We needed to be in a financial position to be a real candidate to purchase a building” and have begun their Accelerate campaign, he says.

When it comes to running capital campaigns, Leeper believes that “major gifts are back in play.”

“I have seen six gifts greater than $1,000,000 and several greater than $250,000. High capacity donors, while having a very high bar for the project credibility, have an increased interest in standing in the gap in this season.

“Not all people are losing money in the recession. Some are making good money and have surplus to share. The standards for giving are more demanding and the church leadership must be very well prepared to have a series of conversations with a higher capacity donor.

“Two years ago, a pastor could have one conversation about a gift and be done. One and done. Now plan on multiple conversations with a much more detailed plan for their gift,” Leeper says, “The higher capacity donor conversations are much more complex,” he says.

On the financing side too, banks are more careful than ever, with new formulas to determine loan options. “Increased cash reserves, lower debt ratios, smaller percentages of expenses in the human resources category, and other factors are much more demanding,” Leeper says.

“I often have a church brag that they are debt free, and while debt free is good, banks look more carefully at excess cash flow. Does a church have the cash flow margin to provide debt service? This factor is much more in play than ever before,” he says.

Marianne Berlan of Bank of the West says it a little differently. Her own institution has not changed its lending criteria, nor curtailed its lending activity, she says. “We continue to evaluate loan requesters based on a church’s historical cash flow, including recently implemented or ongoing capital stewardship campaigns,” she says. BOTW has “never found it appropriate for a church to rely on growth to meet their debt service requirements.”

She notes that the institution has nearly $1.2 billion in loans outstanding and has no delinquencies.

So a good time to build? While some churches may choose to postpone building plans, Stephen McSwain, senior vice president at Cargill Associates, says, “A church that can postpone its building plans is probably not the church that should be building when the economy is in better shape. What should drive any building plan is, first, the call of God, and second, the need itself.

“A church that follows those two criteria will not only be able to build but will be able to manage any residual debt and, ultimately, pay for the new facility.”

The right question McSwain says is not should a church build, but “What is God calling us to do and is there any way we can do what God is calling us to do and avoid building?”

Ronald E. Keener

By David Holland

Nestled in South Florida’s sun-drenched Fort Lauderdale area, Church by the Glades had two problems as it headed into the year 2008. One of the challenges was the kind of issue most pastors would love to face. The other problem was much less desirable.

The happy challenge facing Pastor David Hughes and his congregation was space-related. The young church was growing wildly and seemingly couldn’t add services fast enough to accommodate all the new families and individuals that were choosing to call the church “home.”

Significantly, this boom wasn’t a result of “transfer-growth” in which mature Christian families move to a more appealing church. The vision of the church was to reach unreached and unchurched people, and that was precisely the type of individual that was fueling this church’s membership explosion.

Best way to grow

By the spring of 2008, the church was holding five main services in its 900-seat ministry facility on the weekend and wrestling with a decision about the best way to accommodate the growth and touch more lives. The traditional approach was to simply build a bigger auditorium and expand the educational space for children and youth accordingly. An alternative some media-savvy churches have pursued in recent years is to establish satellite campuses in locations away from the main church and push overflow growth toward those sites.

Ultimately, after much prayer and deliberation, the leadership of Church by the Glades decided to do some of both. They settled on a hybrid approach that called for building a new 2,000-seat worship center and expanding their preschool area, while also funding the establishment of the first of the church’s many anticipated satellite campuses.

Such bold plans tend to come with hefty price tags. In this case, once the architects, planners and builders had their say, the projected need was $16 million. That’s where the other challenge emerges.

By early 2008, the booming South Florida housing market had gone bust. A staggering number of homeowners suddenly found themselves “underwater” where their mortgages were concerned as a massive wave of foreclosures swept over the area. Furthermore, by April, Florida was facing its highest levels of unemployment since 1976. This ethnically diverse church found itself in the heart of one of the hardest hit areas in the entire nation — right along with Detroit, Las Vegas and sections of California.

Daily headlines shouted of economic gloom and consistently predicted additional financial hardships on the horizon. Each evening’s newscast seemed little more than a long litany of dark stories about mortgage defaults, business closings and layoffs.

The leadership of Church by the Glades confronted an obvious question: “Did it make any sense to push forward with a capital campaign in the midst of such widespread economic turmoil and pervasive uneasiness?”

Abundant fruit

Again, after much prayerful deliberation, the consensus answer was “yes.” The need was too great; the fruit being produced among the people of the congregation too abundant, the God they served too powerful to be deterred by fear. The church engaged fundraising consultant The Gage Group for its capital campaign.

Still, for the leaders of Church by the Glades and the team they had assembled, the question became, “In the middle of this crazy environment of fear and scarcity, how can we help move people into a spirit of generosity and trust?”

The church initiated what some call a “reverse offering.” As one local newspaper headline described it after the fact, “Local Church ‘Passes the Plate’ to Give Away the Offering.”

In the weekend services of May 10-11, the church passed out envelopes containing cash to each individual in attendance. Those envelopes contained varying amounts ranging from $5 up to $1,000. The rules of the exercise were that each person was on their honor not to spend the money on themselves. Nor were they allowed to simply give the money back to the church. They were to pray for guidance and use it to meet a need in the life of another person.

The resulting effect on the congregation was nothing short of phenomenal. The church created a special Web site (www.MyGoBigStory.com) in which members could post their thoughts and experiences about the exercise.

When the capital campaign officially launched in the autumn of that year, even as the national recession was intensifying, the response from the congregation was remarkable.

The church has received more than $11 million in pledges from the church body. And an initial offering raised more than a half million in cash.

As a result, the church is moving quickly and confidently forward with its plans for expansion. And not a moment too soon. Church by the Glades recently added a seventh service to its weekend schedule!

David Holland is a freelance writer in Dallas, TX. [www.DavidAHolland.com] [www.churchbytheglades.com]

The facility will cost in the range of $130 million; the record for the largest sum raised for a church building campaign is $80 million, with a church in Florida. Senior Pastor Robert Jeffress says “Our church has the capacity to build this campus debt-free and that is how we would like to proceed.” In the Nov. 1 service, Jeffress said that the church had already received $62 million in pledges, even before the launch of the campaign. Richard Caperton and Doug Turner are the independent consultants in raising the funds.

By Rick Campbell

The pastor of “Hometown” Community Church noted in a casual way one Sunday that the pledges for the new worship center and classroom buildings were coming in only at a 50 percent rate.

The church had already broken ground for the new buildings, construction fences had gone up and dirt was being moved on the site. The church of about 2,500 adults and children is 12 years old and the pastor has been there three years. The current facility is a permanent one but the church is growing fast and now has five contemporary services over two days.

Eight months ago the church had a mini-campaign, done without professional fundraising help, mostly to new people in the congregation. The leaders were encouraged enough to proceed with the construction, but just at the time the country was entering a recession. The vision has been shared over the months for the use of the new facilities. But the leadership has had to downsize the plans to bring the building more in line to contributions. What steps can this church, and others like it, take to save the project?

Church Executive asked Rick Campbell, President/CEO of INJOY Stewardship Services, Duluth, GA, to suggest a response to this church’s situation.  — Editor

The Case Solution: Implement best practices to reset the campaign

In the case story provided, it is important to note several pertinent items are undefined. Specifically, is the church in the middle of a full capital campaign and the mini-campaign was to simply engage new people who have not been assimilated? If so, how deep into the full campaign are they? There would be several more. However, taking the information and the campaign experience at face value, I would advise the church to take specific, clear, strategic action items.

In the interest of authentic and effective leadership, recognize that without taking proactive steps of change, the project as designed will not come to fruition. The church leadership must agree to the need for employing ministry best practices.

1. Building Foundation — we must connect with everyone who considers this their church home.

2. Effective Communication — we must tell the story in a manner that is compelling and clearly connects the people to the opportunity for ministry impact and life-change.

3. Strong Vision [Future Picture] — we must link the project (which is not the future picture) to the Future Picture, and ensure that the people of the church see themselves in the picture of the future.

4. Strong Values — we must communicate clearly those elements of ministry and life about which we care deeply and help the church understand that the fulfillment of this project contributes to that end.

5. Purposeful Measurement — we must be willing to honestly assess at all times how we are doing and be willing to adjust course as needed to see God’s intended purposes for this church become reality, regardless of how we may be viewed by others.

As part of the implementation of best practices, the church should engage in a stewardship partnering relationship that can assist with wide-ranging stewardship issues and lean into their counsel regarding the current situation. A church in this environment will typically raise 1x their annual operating budget (est. $3 million) if conducting a campaign internally. The same church when utilizing a partner will raise 2-3x their annual budget (est. $6-9 million). There are many reasons for this:

My experience in the context of partnership would advise this: Agree to an early close-out of the current campaign — six months from now. This will allow the church to deliver a bring-it-home-strategy while also delivering a simultaneous launch into the next campaign effort. This is done through the development of a strategic timeline that allows specific and targeted communications to those currently participating at various levels while you springboard with maximum effort into the following commitment period. For this to take place, the following is needed:

Communicate the close-out plan effectively. The elements of which are:

Here is what we are doing — “We are ending this campaign early.”

Here is when we are doing it — “We are identifying an end date of the current mini-campaign.”

Here is why we are doing it — “The current pace of giving will not get us to where we need to be on a project that is mission-critical to seeing God’s purposes achieved in this church.”

Special communiqué to those who did partner in this campaign — “We want to thank you and express our     appreciation for your commitment and generosity.” I would consider a special dessert event to communicate face-to-face with this group.

Enlist the remainder of the church family to give during the “close-out” season. As part of this process, the leadership needs to set reasonable goals for the remaining six months.

You then link these specific goals to project attainment. For example, “Hitting this mark [$ ] will allow us to accomplish for the project and move us into a position of strength as we tackle the next phase.”

Faithfulness of the people

A concern was made about the faithfulness of the people or a lack thereof. Americans are the most generous people on Earth. However, in today’s economic uncertainty, the response level to “nice” projects is low. “It would be nice to have a Family Life Center or it would be nice to pay off the debt” will not drive people to sacrifice, but “vital” projects will.

Statements such as “Let me tell you what keeps me awake at night” or “For our church to become everything God wants us to be, it is vital that we expand our facilities” or “If not now, when, if not us, then who” communicates the passion needed to position people to do something significant for God. Whether a church is staff-led, committee driven, or has some other decision structure, the ability of the leadership to communicate the compelling nature of the project and why we must participate is critical for success.

When projects are identified as critical particularly in fast-growing environments, new and more creative thinking strategies are needed to ensure maximum participation in multiple campaign situations. The first is an environmental assessment. There are several ministry dynamics that are identified and processed in the assessment.

What is unique about our culture? What specific financial issues do our people face today and what opportunities are ours to extend ministry to them? What are the unique elements that comprise our ministry/relational DNA? What are the 10 to 12 unique key descriptors of our Future Picture [vision]? How would we best express our values? What are our historical mileposts over 12 years and what have we learned through the process, including previous campaigns?

Are we serious?

Regarding ownership, are we willing to relinquish tightly held reins in order to maximize the release of pertinent information to the church family in order to see a transfer of ownership occur; i.e., are we serious about bringing the church fully on board to the extent that they take ownership of the results? How does this project factor into others that have come before? Others that are on the drawing board? Does the church know about future projects? Are we committed to communicating the full “master plan?”

Fast growing churches generally have a strong contingent of young families. A typical young family profile is a couple who has a mortgage note that stretches them, two car payments, and credit card debt. Many times, an influx of this demographic will create an environment where the ministry need can outpace the ministry resources. As part of the church’s unique DNA and to position these families to take ownership of the Future Picture, providing elements of stewardship, apart from capital, can now be implemented to minister as well as prepare the entire church.

John Maxwell has often said “You can’t leapfrog leaders.” This is especially true during a capital campaign. A Leadership Briefing will be needed. As part of this process, the church’s ministry, positional, and financial leaders are gathered for full briefing on the campaign close-out while making them insiders on other stewardship offerings as well as the future campaign. Of those invited, the top leaders will be enlisted to lead the new and full campaign.

Finally, the momentum and growing attendance patterns in this church would give me tremendous optimism for its future. However, I would position its weekly communications differently. Our experience shows that gratitude + application multiplied by volunteerism over time is greater than our economy challenges. Let me explain.

1. For many, it is a tremendous sacrifice to provide financial support on a regular basis. Tell the people as much as possible “thank you!”

2. In addition to the expression of gratitude, communicate how their generosity is improving the quality of human life in their community and globally. For example, “Because of your generosity, this week we were able to buy 75 computers for the community learning center which will help inner-city children develop the skills needed to effectively complete homework assignments this year.” This allows church members to give through your church, not to your church.

3. Develop a strong volunteer base. Stewardship is a sequential discipline. People will not give sacrificially of their treasure until they first give sacrificially of their time and talent. Volunteers develop ownership and learn the spiritual discipline of sacrifice by having “skin in the game.”

4. This must be done over time — week in and week out.

5. If you do this, you would have created a culture of generosity that will sustain you through economic downturns.

This is hard work and must be conducted strategically. You cannot preach through a campaign, you must lead through it.