Who should you call first: the bank, architect or builder?
By Shawn Fink
To approve a loan, the bank wants to know the project’s cost. But, to get the cost from a builder, you need a design. And to get a design, you need an architect. And to pay an architect, you need money from the bank!
So, who do you call first? And does it matter which builder, architect or bank you call?
Yes — it matters a lot
Your decision can make a huge difference in the outcome of your project and the effectiveness of your ministry.
Prior to making any calls, my first recommendation for a smooth process is to reflect on the purpose of your project and the core needs of your ministry. Ministry need should always drive the project. This helps ensure your project fits within your current financial parameters and meets both current and future needs. Once you’ve clearly identified your core needs, it’s time to pick up the phone.
I recommend starting with a church lender. They understand church finances, budgets and ministry-at-large. Your first call with them should help you understand the underwriting standards and documentation you’ll need to provide for loan qualification. Most lenders ask for the last three years of financial statements and a current year-to-date financial statement, as well as an idea of your property’s current market value.
A good lender can also work with you to identify your financial resources — what you can afford. This is determined by evaluating three items: cash on hand, fundraising potential and borrowing capacity.
Your cash on-hand is the money you’ve set aside for the project. Make a clear distinction between this money and cash for operating and emergencies. Do not deplete your operating cash to build, as this could cripple your ministry.
Your fundraising potential is the amount you could raise from your congregation and ministry partners to help fund the project through a capital stewardship campaign. The lender or a stewardship campaign consultant can help assess this potential and determine realistic goals.
Your borrowing capacity is your debt capacity in light of your ministries, missions giving, salaries and other expenses. Think of this amount as your borrowing boundary — not as the final amount you should borrow.
These three items combined will give you a benchmark for the possible scale of your project.
Keep in mind that banks and other lending institutions tend to identify all your income as a potential debt-repayment source. This is dangerous, as it could compromise your financial commitment to ministry. A good church lender will not simply talk about how much you can borrow but how much you should borrow, as well as other options you might have. In other words, they will discuss a financing strategy rather than just a loan. This might include a capital stewardship campaign to help capitalize the project, minimize the loan, and involve your congregation.
After clearly identifying your ministry needs and financial resources with the help of a church lender, you have a framework within which to approach a builder and discuss a project that is not only what you want and need, but also what you can realistically afford.
A true team approach
Some of the best advice I can give is this: Let your builder and lender serve you as a cooperative team. Partnering with church design, construction and financing experts helps ensure a smooth project from start to finish. Make their team part of your team, keeping God’s vision for your ministry at the center. He will guide and direct.
Shawn Fink leads the construction and facilities team of Foundation Capital Resources in Springfield, MO.