Mission Possible
Professional advice for Church Financing
As published in Worship Facilities, Jul/Aug 2006
The goal is tantalizingly clear: the ideal piece of property; an awe-inspiring church facility blueprint; the long awaited go-ahead for an exciting project that promises to take your church to the next level; or even the solid effort to retire funds borrowed in the past. While the objective to obtain a loan may be evident, the task of finding a lender willing to lend your church possibly millions of dollars can seem – well, like mission impossible. Perhaps your congregation has been blessed with a financial consultant able to volunteer his or her full attention to researching and negotiating your loan. If not, then read ahead to gain advice from two industry professionals who regularly assist churches on their individual financing forays.
Concurrently serving two roles in the financial market is President/Owner, Tom Brown, of Full Armor Corp based in Blowing Rock, North Carolina. Full Armor's business is structuring, locating and negotiating real estate financing for churches. Brown is also the Watauga County area executive for Northwestern Bank in Boone, North Carolina. He previously was employed with another bank as the head of their church banking department. From this spectrum of experience Brown is able to relate well to both sides of church financing.
When initializing the loan process Brown is a strong advocate for the technique of maximizing competition. "Get your credit request to as many lenders as possible," stresses Brown. "Competition is the way that any church borrower will get the best arrangement. As you communicate with lenders make them be aware that you have choices and the lenders will probably adjust their proposals to try and get your business."
Brown continues, "Next to that a church needs to show a lender that it is prepared and ready. To be strategic when it comes to future borrowing, my idea would be to figure out what level of payment the church will be comfortable with and begin setting that money aside on a monthly basis. Let's say that is $1,000 a month and a church wants to borrow in two years. In two years when they approach lenders to request credit arrangements not only will they have a cash reserve of $24,000, but they will be able to show lenders that for the past two years they have acted as if they were making this payment. Tangible proof in the financial statement proves to a lender that you can handle that amount of money. As a lender I am not going to have to guess if expenses can be adjusted to fi t my payment into their budget." Brown emphasizes, "This approach is a great way for a church to be proactive."
Another means for a church to strengthen its financial picture in the eyes of lenders is to measure growth. Brown agrees, "A church should document growth, by counting attendance, church membership and by financial statements that show increases in income – any way they can show they are growing and not declining. These are things that will get a lender's attention. Lenders want to lend into a strong situation, not a weak or declining one.
Brown also cautions churches to be aware of certain conditions which may appear in a church loan commitment letter. The first is ‘prepayment penalties.' " Lenders may state in their loan documents that if you pay down principal early then you pay a penalty. The lender prefers to keep the loan out as long as possible and earn interest doing so, and may include a penalty for early principal reduction," he warns.
The second condition common in business lending that a church should look out for is "personal guarantees". Brown explains, "Commercial lenders who may not do a lot of church loans may ask for personal guarantees, like they do in business loans, and may request the elders or some other individuals in the church personally guarantee the loan. In a competitive environment between lenders a church should be able to negotiate Paul Gage, founder and president of The Gage Group (a firm that specializes in fundraising efforts for churches) located in Dallas, Texas stresses the importance of finding lending institutions that have experience working with faith-based organizations. "Many lenders today do not understand the work of the church and how faith-based organizations are operating," notes Gage. "Much of what they do is black and white and they don't always understand the level of commitment, loyalty and generosity that people have in God's work for the church."
According to Gage the first thing a church should consider, whether it is a large or small one, is initiating a capital campaign to improve their position for borrowing. Gage refers to a current project to illustrate his point. "I'm helping a five-year-old church who started with nothing. They have experienced tremendous growth and are currently meeting in a YMCA. They have no assets and only a small amount of money in the bank. A piece of land with a building on it became available to them. The cost was about eight million dollars for both and they needed another two million dollars to remodel the existing building. So, here is a ten million dollar project for a young church with an annual income of about one million dollars. That's ten times their annual giving. If you put that cash fl ow in front of a bank there is probably not a bank anywhere that is going to touch it. So, what we did is we came in and helped them with a capital campaign knowing if they had more cash in the bank it would strengthen their position with the bank. We communicated that in the campaign to the congregation, and the long story short is we had just under three million dollars pledged. But, two of the three million came in as cash. So, now the church has, in addition to an annual income of one million dollars, two million dollars in the bank. Now a lending institution in California is willing to lend them the money – that is what a capital campaign can do for a church."
Consulting firms, such as Full Armor, The Gage Group and others, can help a church successfully obtain financial loans. These organizations often receive payment for services only after a loan is secured, and compensation may be in the form of a small percentage of the entire loan amount. Often they will request a small retainer fee up front to ensure potential customers are serious about obtaining their services. Other such consultants are fee-based, which means they receive payment during the actual campaign process. Fees are usually determined by the size of the church's budget.
Whether attempting your own financing or securing the service of established consultants, a seemingly insurmountable sum can be fi nanced to make you church's mission possible.
QUICK - LINKS
Full Armor Corp.
Church real estate finance consulting
(828) 295-9889
www.fullarmorcorp.com
The Gage Group
Church fundraising consulting
(800) 684-4243
www.thegagegroup.com
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