The state of religious lending

By Dan Mikes

FINANCE AND LENDING TRENDS ICONReligious institution expansion appears to be on the rebound, and the willingness of financial institutions to support this growth remains strong. At the same time, the religious institution segment as a whole seems to have learned from some of the challenges it faced through the downturn. In this post-meltdown era, physical expansion plans were less aggressive, and required a lower debt-to-income ratio.


I should begin by stating that data to support these comments is not easy to come by. In fact, for this publication, the editor requested that the author provide observations supported by the experience of a single lender to religious institutions — albeit one which has loaned nearly $4 billion to houses of worship over 20 years of uninterrupted service to the segment — and one who reviews hundreds of loan applications annually. The loan applications alone provide insight into the expansion plans of these institutions, regardless of whether the loan amount was or was not approved.

First, some historical perspective

state of religious lendingAs we all know, the early 2000s were marked by strong growth. While home ownership was expanding at a rapid pace — due, in part, to lax credit standards — per the market observations of the aforementioned lender, so too were houses of worship. Many applicants reported receiving loan commitments for amounts in excess of the limit which the contributing lender was willing to approve.

Prior to the downturn, the words “religious institution” and “foreclosure” were rarely spoken in the same sentence. Unfortunately, that changed when the economy took a turn for the worse, and many congregations struggled.

Immediately following the downturn — between 2009 and 2013 — congregations kept their finger on the expansion “pause” button, perhaps due to higher unemployment rates and a general reluctance to go to their donors with a capital-pledge fundraising request, as typically coincides with religious institution physical expansion.

For example, between 2003 and 2009, the hundreds of millions of dollars which were loaned to new customers was split 54 percent for refinancing, and 46 percent for new construction. (It should be remembered that bank loans typically term-out, and must be renewed or refinanced, at five- or 10-year intervals.) By contrast, of the hundreds of millions of dollars loaned to new customers between 2010 and 2014, only 22 percent of those funds were for construction.

However, in 2014 and 2015, construction within the religious institution segment increased — seemingly taking its cue from a declining unemployment rate. During those two years, 44 percent of the hundreds of millions which the referenced lender advanced to new customers were for construction.

Based on the above, one might wonder if attendance at religious institutions drove the variability in construction activity. After all, why would an institution need (or want) to expand if adult attendance was in decline? Data provided by the same lender seems to imply an answer.

Between 2005 and 2015, the average adult worship attendance across this lender’s total pool of customers increased every year except one. This seems to support the assumption that the apparent down-tick in construction activity was related to a reluctance to undertake capital expansion fundraising. While any correlation to fundraising and the unemployment rate is (from a purely statistical perspective) anecdotal, it is worth mentioning that this lender further supports its market observations based on continuing dialogue with its hundreds of religious institution customers.

Expansion plans seem to be more moderate, with debt requests requiring lower debt-to-income ratios. This observation is based on the lender’s observation of an increase in its own “approval ratio,” or the percentage of loan applications which were approved for the requested amount of debt. It should be noted that financing offers typically carry contingencies like a loan-to-value limitation. However, the “approval ratio” is calculated without consideration of the eventual collateral appraisal valuations and, therefore, does not reflect the impact of fluctuations in the real-estate market.

Also, this up-tick is not a function of any change in credit policy, as this lender’s credit policy remained static through the timeframes referenced in this writing.

One final bit of good news for the borrower…

The referenced lender reports a relatively stable “acceptance-ratio” (offers extended versus new customers won) through the periods referenced in the writing. This might imply that in spite of the problems which some religious institutions faced during the downturn, there appears to be no shortage of lenders willing to link arms with houses of worship — and march forward with them in support of their visions!


Dan Mikes is Executive Vice President and National Manager of the Religious Institution Division, Bank of the West, San Ramon, CA. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of Bank of the West.

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