Churches in the market for a loan can take some of the tips offered below that are based on the experience of a church that has successfully borrowed money for a bigdollar expansion project. And then they can couple those with advice from heavyweights in the church loan business on what mistakes they need to avoid. And they shouldn’t be put off by the fact that loans are just plain harder to get than they used to be.
“Underwriting standards are tougher today than they were four years ago, but they are reasonable,” says John Berardino, senior loan officer for Griffin Capital Funding, a Fredericksburg, Va.-based church lender.
Credit was probably too easy to get back then, Berardino notes. “But commonsense underwriting is now back—and that means that good deals are getting done.”
A done deal
One recent done deal was that by Appleton Alliance Church, a Christian and Missionary Alliance (C&MA) church in Appleton, Wis., that got a loan from Walnut Creek, Calif.- based Bank of the West for a $22-million expansion project.
The project, whose components include a new worship center, gym, expansion of its children’s area, and other improvements, adds about 180,000 square feet-worth of new facilities that will help handle the growing congregation at the church, where attendance reaches some 2,500 to 3,000 on any given weekend, according to Appleton Alliance Executive Pastor Karl Koenig.
The church began the process of funding the project in February 2010 by kicking off a capital campaign with the help of Atlantabased church fundraising/capital campaign consultant Generis, with actual pledges made in January 2011, Koenig reports.
In today’s down economy, it took a lot of work—including applying to more than one lender—to land loan dollars for such a large project, Koenig recounts.
“There were some struggles getting people to even look at our project given the state of the economy, and because it was so big,” says Koenig. “We always had a kind of ‘ace up our sleeve,’ knowing we could do a bond issue if we had to—but we didn’t really want to do that because of the expense involved.”
Appleton Alliance utilized the services of Crossbridge Funding Group, an Indianapolisbased consultant/regional mortgage banker whose specialties include church lending, in putting together its loan package and financial prospectus.
With the help of Crossbridge, “We were well prepared to present our prospectus to lenders,” Koenig says, “so we didn’t have a lot of ‘bumps in the road’ before we got a letter of intent.”
Prayer, vision and networking
Koenig has several tips for churches seeking loans for major capital projects. First off, remember that “cash is king” in today’s economy.
At the same time, “It used to be that pledges would influence lending institutions and ‘count’ towards your cash flow projections, but this is not always the case in these tough economic times,” says Koenig, adding, “Bottom line, build a solid cash reserve before going in for financing.”
Also keep in mind that experienced consultants can make a big difference.
“Having insider knowledge about how lending institutions will look at your financials will go a long way towards getting a loan,” Koenig says. “The help we had from Generis and Crossbridge was well worth the investment.”
In addition, be aware of the new (i.e., post- 2008) realities of the real estate marketplace.
“If your current facility is paid for, don’t just assume that 100% of its assessed value or book value can be used as security for a new loan,” says Koenig. “There [are] lots of vacant properties on the market right now,” he notes, “and this has negatively influenced the value of many church facilities.”
Other useful advice from Koenig includes:
“Pray regularly with and for your leadership team. Make sure everyone is honed in on God’s will.”
“Get your vision straight. Know what you are willing to cut if you have to cut, but don’t sacrifice the vision.”
“Network with people who have done what you are trying to do. Don’t shy away from paying for consultants; it can pay off big time if you find the right one.”
Common mistakes churches make in seeking loans include underestimating the importance of putting together quality financial statements for potential lenders, according to David Van Winkle, vice president of the ministry development group for Evangelical Christian Credit Union (ECCU), based in Brea, Calif.
“Many churches choose to start their projects based on poorly prepared financial statements,” says Van Winkle. “But, good financial management dictates that you have your statements prepared by someone independent of the ministry—preferably according to generally accepted accounting principles (GAAP)— and that you know how to read and discuss them.”
“Lenders will want to analyze your church’s historic and current operating results to assess your ability to repay your loan,” Van Winkle says. “Having these statements in a standard format could make the difference in your application getting approved.”
“Have a good accountant—ideally a CPA, but it doesn’t have to be—look over your numbers and make sure they all tie together,” adds Kregg Hood, senior vice president/Loan and Capital Solutions for Springfield, Mo.- based AG Financial Solutions.
“At a minimum, you have to at least have a good balance sheet and a good income statement (a ‘statement of activities’ in the non-profit world) that demonstrate you can make loan payments and still do ministry,” he says, adding, “And remember it’s not all about getting a loan—it’s about building the Kingdom.”
One of the major mistakes churches make is waiting “until they are in crisis” before they apply for a loan, according to John Walling, president/CEO of San Dimas, Calif.-based Christian Community Credit Union (CCCU).
And at the same time, “They do not have a written plan as to what the objectives of the ministry are, and therefore they are trying to move forward in a time of weakness instead of strength,” Walling says. “They come without preparing current and accurate financial statements. All of these are indications that they do not know where they are, where they think they need to be, and how to get there.”
In these tough economic times, all churches and ministries need to evaluate their mission and purpose, and develop plans to achieve them, according to Walling.
“My advice is for each church and ministry to seek wise [counsel], prayerfully develop their mission and goals,” he adds, “and tell the story of the mission of the organization—in order to gather the support of its members and donors.”