By John Berardino
Positioning your church as a solid lending prospect starts today. Here’s how.
Preparing to apply for a church loan really begins about three years before the money is needed, as lenders will want to see the last three years of the church’s financial statements. Even for churches that keep good financial records, most find it very time-consuming to go back through three years’ of bank records to create financial statements. So, they often hire a CPA, accountant or bookkeeper to create these items.
For most loans, a church simply needs to have financial statements prepared on a Compiled Basis. However, there are always exceptions; any church seeking a loan should contact a loan officer to make sure the correct financial statements are being created.
Credit and reputation considerations. One very important piece of the puzzle is a church’s credit and reputation within the community — including the pastor’s.
If a church has paid its current mortgage more than 30 days late on multiple occasions (especially recently), securing a conventional loan might be a challenge. For these clients, our company manages a private money fund called Griffin Private Capital. The interest rate for this program is high, but it can be used even when a church is in foreclosure or bankruptcy.
Just as important, if the pastor has been in the news for negative reasons, this can be a barrier to a church securing a loan.
Positive trends for cash flow, membership and tithes. These three trends are the basis for evaluating the financial direction of a religious institution. Under-writers often take these into consideration when evaluating whether or not to make a loan to a church. If negative trends are evident, it’s important that a church does its best to explain what happened and what has been done to correct the situation.
Filing a form 501(c)(3). Although religious institutions aren’t required by law to file a 501(c)(3) form, it makes getting a loan easier. Many underwriters are unwilling to make a loan to an organization that’s not officially recognized by the IRS. So, if your church hasn’t applied for its 501(c)(3) status, it can begin the process by visiting the IRS website: irs.gov/pub/irs-pdf/f1023.pdf.
Begin collecting for a building fund now. Starting a capital campaign will help a church save money as though it has already secured the loan. Begin collecting specifically for a building fund. Your church can do this in many ways — additional collections at services, special events and fundraisers, letters to church donors, and so on. Set this money aside in a special account designated for your building, and begin to pay into the account an amount equal to what your mortgage payment would be if you had it. Do this consistently, and you’ll save money while showing an underwriter that your church can afford the payment.
If your church already has a mortgage or rent payment, then save the difference between what it’s currently paying and what the new payment will likely be, plus a margin of 15 percent of the proposed payment. (Example: If your church currently pays $5,000 in rent, wants to buy a building and expects the monthly mortgage payment to be $10,000 per month, it should save the difference between the two — $5,000 — plus a margin of 15 percent (an additional $1,500) for a total monthly savings goal of $6,500.)
The bottom line is this: Be organized. Do your homework on your church’s financial history. Have your financial statements ready to be reviewed.
The more prepared you are, the more likely it is your church will be approved.
John Berardino is managing partner at Griffin Capital Funding in Fredericksburg, VA.