With a fairly active 2013 coming to a close, next year's outlook for debt financing for church facility construction and expansion is generally positive.
That said, if you have a project that you want funded, or want to simply refinance existing debt, the time to get the ball rolling is now.
Pick up in activity
Construction activity by churches has been picking up over the past several months, according to Therese DeGroot, market president for the Community First Financial Resources division of First Bank in Lake Forest, Calif.
"Many churches that had been holding off buildingand have managed their finances well, not taking on more debt than they can serviceare now undertaking construction projects," DeGroot says.
She expects to see demand for construction loans edge upward during 2014, "because even though rates will be moving up, they will still be on the low side."
Ample funds are available for qualified borrowers as the market moves into 2014, reports Scott Rolfs, managing director and group head of the Investment Banking/Religion and Education unit for Milwaukee-based Zeigler.
"Banks have recovered, and bond companies are active," says Rolfs. At the same time, with the volume of construction projects declining from pre-2008 levels, "There is not only pent-up demand from churches for new facilities, but some pent-up capacity for lending."
On the interest-rate front, the good news is that rates are still near 50-year lows, according to Rolfs. The bad news, though, is that rates started to climb in May, when the Federal Reserve hinted it would begin to reduce its bond-purchase programs.
"Rates are still very good on a historical basis," Rolfs says, "However, we have hit the bottom, and they are now moving back higher."
Meanwhile, gauging how much giving a church can count on for the equity portion of its project has grown more complicated with the rise of remote participation in worship activities.
In this regard, one trend churches need to keep an eye on is viewership rates for online services and podcasts, Rolfs reports. "Many churches are seeing strong demand for online streaming of their services," he notes. "And these churches are going to have to determine what type of stewardship contributions are available from the virtual' members of their congregations, vs. those who physically show up on Sunday."
Lots of cash
A second-half 2013 uptick notwithstanding, church construction levels are still well below those of the years preceding the Great Recession, according to Dan Mikes, executive vice president and manager of religious institution banking for Bank of the West in San Ramon, Calif.
"Cash reserves got very low during the downturn, as churches were often very slow in cutting expenses to match the decline in contributions," Mikes notes, "and as a result, churches became very cautious about moving forward with expansions."
That sense of caution about taking on mortgage debt lingers among many churches, Mikes says.
Those that decide they do want to move forward with projects, though, will find a welcoming lending marketplace.
"Any banker will tell you that they are not making as many loans as they'd like to be," says Mikes. The banking system is flush with cash, he notes, "and everybody is behind in their goals for loan production."
In the bond-financing department, activity is picking up among churches primarily because of concerns about rising long-term interest rates, reports Martin Northern, vice president with Dallas-based Share Financial Services Inc. "And churches realize that bond financing is the only fixed-rate, long-term financing option available right now."
Northern notes that church construction activity is picking up as the economy improves and churches are seeing their giving increase. He also sees a pickup in demand for church bonds by investors. "Many of whom are CD holders that are tired of their money drawing low interest rates, or have CDs that are coming due and are looking for a more productive place to put their money," he reports.
Get your ducks in a row
In the advice department, DeGroot has several tips for churches applying for loans in the coming year.
"Have all your financial ducks in a row,' as well as a vision statement for what and why you are building," DeGroot says. "And remember, even if you are just refinancing, that presentation is everything: the more professional-looking and detailed your [loan application] package is, the better."
For ministries that can refinance, "It makes all sorts of sense to take advantage of low rates by finding a lender that understands how to finance ministryand locking in now," DeGroot says.
And to make their loan applications stronger, Rolfs encourages churches to save their cash and hold the line on spending.
As part of this strategy, he says, "Wait to hire more staff for expansion until after you've got your building project completed, and are moved into the building."
Now is a prime time for churches to take advantage of today's low interest-rate environment and refinance existing debt, adds Mikes.
"If you haven't done so yet, you need to do it immediately," he says. "Even though [interest] rates are increasing, they are still low relative to historical normsand very often, the savings achieved through refinancing are going to be very substantial."