By Dan Mikes
In recent months the Federal Reserve has been uncommonly explicit regarding their intentions to hold interest rates low for the next couple of years. While this is hard on savers it certainly extends a rare window of opportunity for borrowers.
Refinancing an existing debt at today’s low rates can free up substantial resources for outreach or new hiring which may have been frozen in recent years in response to economic circumstances. Knowing what to prepare and how to approach a prospective lender could prove key to securing a highly advantageous offer.
You should begin your refinancing quest by identifying prospective lenders. Other churches can be a good referral source. Ask them who their lender is, whether they would recommend that lender, which other lenders they included in their competitive bid process, and any other advice they may be able to offer. You can also contact, or visit the websites of various religious trade organizations and magazines.
The most important point to remember is you should not limit yourself to dealing with local institutions. Although you may have relationships within the community or a desire to support local commerce, the overriding commitment should be to stewardship. Several national lenders which specialize in church financing have financial products tailored specifically for churches. Their products exclude onerous and potentially expensive loan covenants.
Expert church lenders also offer a well-defined and efficient process as well as deep experience with cash management for ministries, guidance regarding future borrowing capacity, and numerous other helpful tips which they have gathered from working exclusively with churches.
When contacting prospective lenders there is a basic list of items which you should be prepared to provide. Each lender will then specify additional items which, upon their receipt and review, will likely result in a series of up-and-back communications which will serve to fully orient your ministry with the bank.
Guide through the process
An experienced lender can guide you through this process and deliver a detailed Term Sheet or Preliminary Expression of Interest letter outlining pricing, loan structure, and sample covenants usually within one or two weeks. Allow up to a month or more with local lenders or banks which do not specialize in financing ministry. After selecting a lender, assume an additional four to six weeks to close the loan.
The initial list of items you should be prepared to submit to a prospective lender includes: three years of income statements and balance sheets, three years of adult worship attendance totals, details of any capital pledge campaign, number of years in existence as a church, lead pastoral tenure, by-laws, board composition (i.e., family, staff, local lay persons, long-distance ministers, etc.), a brief description of real property owned and a layman’s estimate of the current market value. If physical plant expansion and related borrowings are anticipated within the foreseeable future, be sure to discuss this with the bank so that you are entering into your new relationship with mutual expectations.
If your church has fewer than 500-600 adults in average weekly worship attendance the bank may not be concerned if the pastor or a board member acts as the lead contact person for communications with the bank through the financing process. However, churches with larger congregations have the financial wherewithal to employ a qualified full-time business administrator. Frankly, when the pastor, board member, or, worse yet, a loan broker is identified as the banking contact for a large church the bank will see this as a red flag weighing against the prospects for loan approval.
Assessment of worthiness
Banks work with businesses of all sizes on a daily basis. One of the key risk matrixes in the assessment of the credit worthiness of any organization is its management team. At a point, the sheer size of an organization dictates that in order for continued success there must be sufficient staffing, separations of duties and delegation of authority.
That is not to say the pastor is not recognized as the head of the organization or that he should not be present at the eventual meeting with the bank and capable of demonstrating a sufficient grasp of the business side of the ministry. Pastoring a large church is an enormous task as well as the top priority which contribute to the continued success of the ministry.
Above a certain level of financial exposure the lender needs to know there is a capable business contact whose livelihood is linked to the continued success of the organization, and who is available to interact with the bank and the ministry’s other business partners on a full-time, daily basis. The loan application process provides the opportunity for the bank to make these observations. Designating a board member or a loan broker as a contact person obstructs the bank’s ability to make this key assessment.
In closing, don’t wait to move to move forward with your efforts to refinance your church’s existing debt. Interest rates have never been lower and they will eventually move higher. Admittedly interacting with lenders is a time consuming stewardship task. Experienced church lenders have a well-defined process and can streamline your efforts, thereby leaving time for your other responsibilities which carry greater eternal significance.
Dan Mikes is executive vice president/manager church banking division, Bank of the West, San Ramon, CA. www.bankofthewest.com