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How to secure project financing in an economic downturn

While the current financial climate limits lending options, ministries can still grow with key steps.

David Van Winkle

“It was the best of times, it was the worst of times … ,” wrote Charles Dickens in his classic, “A Tale of Two Cities.” You don’t need an advanced degree to see that these are difficult economic times. In spite of that, many churches around the country are still growing and looking for creative ways to manage that growth.

The question about availability of funds becomes very personal if your ministry is currently expanding. What are your options? In an economic environment like this, is financing even available? If it is, has the economy prompted changes in what lenders require of ministries looking for a new loan or looking to refinance an existing one?

Nearly every ministry is being affected by the economy but the impact varies. While a number of the churches we’re serving have described a drop in “giving per attender” in 2007 and 2008, some have maintained their giving levels by increasing the number of attenders. Other churches have reported an increase in giving. Of course, the level of giving at your church is a key indicator of your ability to secure financing. But it is just one of several criteria lenders use to make lending decisions.

The affect of rising costs

Keep in mind that today the size and scope of the project you ultimately bring to a lender for financing consideration will be dramatically affected by the economy. Everything seems to be increasing in cost, and with fuel prices continuing to rise, expect whatever you build in the future to cost more than if you had built a year ago. Given these realities, here are three things a lender would encourage you to consider as you move into an expansion project:

  1. Negotiate and sign a guaranteed maximum amount contract with your general contractor.
  2. Build a “safety net” into the project in the form of a cost contingency to protect the project and the ministry in the event of surprises during construction.
  3. Raise a greater percentage of the total project cost from the congregation to minimize borrowing.

Taking these steps can soften the impact of rising costs on your project and once it’s under way, prevent the kind of financial surprises that could hinder your ministry or damage its reputation.

Lenders scale back

When you begin planning for expansion it’s always a good idea to talk with a lender early in the process. In the present economy a number of lenders who were previously active in providing financing for ministries appear to have scaled back their commercial real estate lending efforts. So you may find fewer financing resources available than a year ago.

There are still lenders actively engaged in helping ministries. Their underwriting limits may be a little tighter now than they were a year ago, which could impact the size of loan your ministry qualifies for. However, if your ministry is growing don’t let this discourage you from going forward with your plans. The requirements for a loan are actually the same today as they were a year ago:

  • Your ministry must show a stable or growing attendance record.
  • Your church’s giving history must show enough free revenue to support the payments on the new loan.
  • You must have three years of quality financial statements that were prepared according to standard accounting practices.
  • You must have enough capital (cash or equity) so that you borrow no more than 75 percent of the value of your property when it is completed.
  • And of course you should have a plan that describes how this project will positively impact your ministry.

These guidelines suggest that sound financial management is more important than ever for growing churches looking to expand. Keep this in mind as you talk with lenders. It’s important that your financial partner not only understands ministry in general and your ministry in particular but that they’re also able to consult with you on how to best manage your finances. Reviewing your current banking picture with someone who understands ministry and discussing things like adequate cash reserves can go a long way toward achieving your goal of a sound overall expansion plan.

One additional reason to consult with a lender who understands ministry is because of the objectivity they bring to the table. Specifically, they may help you discover that now is not the time to incur additional debt. Doing so may put undue strain on your ministry’s finances and actually prevent you from pursuing your mission. In that case, the best solution might be to wait on your expansion project or pursue it in phases.

So are these the best of times or the worst of times? The answer is yes. If your ministry is growing these are good times. Financing is available to help you expand your facilities and have a greater impact in your community.

David Van  Winkle is vice president of the ministry development group for Evangelical Christian Credit Union (ECCU) in Brea, CA. [eccu.org]

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