Want the best loan rate?

By Therese DeGroot

3 market changes to consider

Although  a handful of post-Great Recession market changes impact the amount for which a church seeking a loan might qualify, interest rates continue to be low. So, now is an excellent time to refinance existing debt or undertake important growth initiatives.

Wantthebestloanrate-While the conditions that banks require might seem burdensome, most are in line with biblical stewardship principles. These include:

1) Property valuation. Most bank lenders are generally limited to loaning no more than 75 percent of a property’s current market value. Given the overall depressed property valuations in recent years, your property could be valued less than it was when your previous loan was funded.

If you’re planning on a building project, the “as complete” valuation could also be as much as 20 percent below actual cost, as the appraisal must consider both the cost to build or replace existing buildings and recent sales of religious properties.

An experienced religious lender will only engage an appraiser who specializes in religious properties to determine a relevant and current valuation. If it comes in lower than required to refinance, drawing on cash reserves (while painful) might be necessary to bring the loan-to-value ratio to 75 percent. Refinancing to a lower rate will result in interest savings that can be redirected to replenish those cash reserves.

Capital campaigns are another solution to reduce debt on over-leveraged properties. This strategy can reduce debt, increase cash reserves and help the church dedicate more resources to ministry.

2) Adequate cash reserves. Church leaders can position their churches to be more attractive loan prospects by making it a best practice to have at least three months’ of operating cash reserves on hand.

When lending through the Great Recession, one positive factor for us — which clearly determined strong leadership and the ministry’s sustainability — was having adequate cash on hand. Churches which maintained appropriate liquidity were able to manage through the tough cycle while not severely cutting back on staff or ministry and outreach programs.

Strong cash reserves also made these churches stronger borrowers, which in turn presented them as a lower risk; so, we were able to offer them a lower rate, which increased cash flow for ministry.

3) Multi-site ministry gains ground. If cash reserves have increased, but the value of your property — even with improvements — still isn’t enough to allow for a building project, consider becoming a multi-site ministry! When expanding the sanctuary isn’t an option — due to loan or property size, building restrictions, neighbor or zoning issues — establishing multiple locations allows your church to keep growing. And, it has proven to be a very efficient and cost-effective way to reach more people. Plan early, and decide what multi-site model works for your vision, and whether to lease or buy property. With values (and therefore prices) at an all-time low, it’s a great opportunity for low purchase and lease prices.

A solid all-around investment
It’s more critical than ever to find a financial partner experienced in religious lending, committed to the market, well-capitalized and liquid. Consider only those which understand how religious organizations operate and are mindful of churches’ unique cash flow nature.

A lower rate, combined with the right financial partner, will support your church’s vision and put you in relationship with a lender you can trust through the challenges every ministry faces — expected and unexpected.

Therese DeGroot is managing director of First Bank’s Community First Financial Resources Division in Lake Forest, CA. She has developed and managed religious lending programs for 25 years for many banks that now specialize in lending to churches, nonprofits and schools.


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