Financing your church bus fleet: common questionsFACILITIES, Latest News, MISSIONS & TRAVEL, MULTI-SITE, Operations Monday, February 1st, 2016
By Mike Jones
When it comes to buying a church bus, the first question is always: Buy or lease?
Obviously, a church needs to assess its needs and weigh the costs of buying or leasing a bus and what works best for its congregation. But I will say this: Buying a bus outright has its drawbacks, because a large amount of money is taken out of operating expenses. As such, leasing has become a much more popular option in recent years among many churches because it frees up money for ministry!
Here are 10 reasons why a lease might work best for your church.
1) Uncertainty of future needs. Leasing provides a church the chance to use a vehicle for a few years to see if the capacity, mileage, amenities, etc., are what best meets its particular needs.
2) Flexibility in your ministry! Your church’s needs might change in a few years. Pastors come and go. Staff changes. Youth groups grow. The list goes on. Leasing allows a church to reevaluate its transportation needs after the lease term is up — generally, three to five years.
3) Major items are generally covered under warranty for the length of lease. Most manufacturer warranties are 5 years / 60,000 miles on the power train and 3 years / 36,000 miles bumper-to-bumper.
4) The first five years a vehicle is in service is typically when a bus’s maintenance costs are lowest, by a significant margin. The bus is new; therefore, you shouldn’t have any issues. If you do have a problem, the majority of items are under warranty, so you don’t have any money out of pocket. Proper maintenance of the vehicle — including periodic washing — is key to having the bus preform the way it’s designed to perform.
5) Years 6-14 of owning / operating a bus can actually cost a church as much (or more) in maintenance and repair costs than when it was making finance payments the first six years while paying off the bus. Also, having a bus break down in your ministry regularly isn’t safe or fun for anyone involved. Time and money spent maintaining a bus could be spent doing ministry.
6) Lower monthly payments to improve cash flow. All churches can use improved cash flow, and the lower monthly payment of a lease is very attractive.
7) New equipment is up-to-date with new industry and federal standards. New buses are a safe, reliable way for your congregation to travel. They will want to be comfortable and safe as they travel in your church’s care.
8) Buses are not an investment. They’re a ministry tool — but they don’t increase in value over the years. Many church leaders believe they’ll purchase a bus because they’ll have trade value in eight to 10 years. A monthly payment for a three-year lease is less than half of what the church will pay each month when financing one.
Plus, your leased church bus is under warranty the whole time. Laying out less money — and having full warranty — is being a good steward of church funds.
9) The church could lease for two three-year periods (two new buses), and it will cost less than financing a bus — and again, they will be under full warranty. You read that correctly: The church can lease a new bus for three years, and then turn it in for another new bus for three more years, and still pay less than financing the same bus.
Additionally, the church has a chance the second time to get a different-size bus, or something with a wheelchair lift, or whatever fits its needs at the time.
10) A five-year lease saves more than $20,000 versus financing. If your church leases for five years, it’s still saving money. And, the power train warranty applies for the full length of the lease term. It’s all about being a good steward of the money God has entrusted to the church.
Here are some other vehicle financing questions churches often ask:
“Is it better to pay cash?”
A church might have the money in savings but might prefer not to deplete the operating funds or savings in case a need arises.
However, if a church has enough cash on hand to purchase a bus outright — and still have enough left over in its operating budget to meet the rest of its needs — paying cash for a bus can certainly be a great option.
“When securing financing, how can we ensure our financials are in the best possible shape?”
Although a church’s financials are important, a lender will be more interested in previous comparable financing and cash balances on hand. If a church has financed items in its past and satisfactorily paid its debts (and the lender reported it), or has significant cash balances (carrying five-digit figures month-to-month), it is more likely to get approvals.
Also, the lender might require a church that’s incorporated (the lender can find it in the state’s Secretary of State website) to provide a copy of its by-laws to show legal existence. Many times, churches don’t have any credit history at all because they pay everything in cash. Although it’s a wonderful thing to pay in cash, lenders want to see some credit history. If a church can purchase a few things and pay them off on time, it will build a good credit history for when it needs to get a loan.
“What do lenders look for?”
• Total annual contributions
• Does the church have a mortgage on its property or building?
• Size of congregation
• History (how long the church has been established)
• Although rare, is there a personal guarantor available?
“How big of a loan can we afford?”
The quick answer is: How much can the church afford if it sees a decrease in contributions? To this end, the amount of cash reserves plays a significant role in determining a church’s credit-worthiness.
As they would any time they take on debt, church leaders must sit down, look at the finances and be sure the church is financially stable enough to take on another debt.
Mike Jones is National Sales Manager at ChurchBus.com.