By Dan Mikes
Contrary to popular belief, it isn’t all about “the numbers” for lenders. Leadership and process are equally important when contemplating the relationship opportunity.
Whether your religious institution is contemplating an on-site physical expansion, the acquisition of a satellite facility, or seeking a beneficial refinance of existing debt, knowing how to prepare and approach a prospective lender is critical to securing the most advantageous offer.
Initial exhibits and information which all banks knowledgeable in religious institution lending will want to review are:
- Number of years in existence as a church
- By-laws
- Board composition (Local lay members? Ministry staff? Out-of-area fellow pastoral associates?)
- Three years of financial statements, including income statements and balance sheets
- Three years of adult worship attendance totals
- Details of any capital pledge campaign
- Lead pastoral length of tenure
- A brief description of real property owned, along with an estimate of thecurrent market value.
If borrowings for physical expansion are contemplated within the relatively near future, be sure to discuss this with the bank. This ensures you enter into your new relationship with a mutual understanding of upcoming needs and expectations.
Carefully consider the primary contact
Banks work with businesses of all sizes every day. In assessing the credit-worthiness of any organization, a key risk factor is the management team.
If your church has fewer than 500 adults in average weekly attendance, the bank might not be concerned if the pastor or a board member acts as the lead contact person for communications through the financing process.
However, religious organizations with larger congregations than this have the financial ability (and the organizational need) to employ a qualified full-time business administrator. Continued success requires sufficient staffing, separation of duties and delegation of authority. When the pastor, board member — or, more concerning, a loan broker — is the primary contact, the bank might see this as an impediment to loan approval. The pastor is recognized as the head of the organization; he or she should be present at the eventual meeting with the bank and be capable of demonstrating a sufficient grasp of the business side of the ministry.
In a sizable religious organization with a certain level of financial exposure, a lender needs to know there’s a capable business administrator on staff who’s readily available to interact with the church’s financial partners with due focus. The loan application process provides the opportunity for the bank to make these observations. Designating a board member or a loan broker as the primary contact could obstruct the bank’s ability to do so.
Don’t limit your options
Identifying lenders which are appropriate for your religious institution’s lending needs is critical. Start by asking other churches for referrals — and whether they would recommend their lenders. You can also contact or visit the websites of religious trade organizations and other ministry partners.
It’s wise not to limit yourself to dealing with local lenders. Although you might have relationships within the community or a desire to support local businesses, the overriding commitment should be to stewardship. Expert religious institution lenders offer a well-defined and efficient process, a wealth and depth of experience with cash management guidance regarding future borrowing capacity, and numerous other helpful insights gathered from working exclusively with religious institutions.
And away we go!
It isn’t always easy to fully express your religious organization’s vision and goals to a financial institution. However — once basic exhibits and information have been received and follow-up communications conducted — 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.
As a lender who has made more than $3 billion in ministry loans, I can assure you that a well-prepared religious institution isn’t only a healthier organization, but a stronger lending prospect.
Dan Mikes is executive vice president and national manager of the religious institution division, Bank of the West, in San Ramon, CA.
