The underwriting hurdles may be a bit higher, but the loans are out there for churches seeking to fund building projects. And for church officials, that puts the spotlight on raising the funds in a campaign that successfully encourages parishioners to participate in supporting capital project efforts.
In many respects, while there may be some changes at the margin, “There is nothing really new under the sun” when it comes to capital campaigns, according to Steve Anderson, vice president of Virginia Beach, Va.-based Church Development Services Inc. (CDS), a provider of house consulting, design, fundraising, construction, and financing services for churches needing to build.
Anderson was founder of AMI Church Consulting Services, a Raleigh, N.C.-based capital campaign fundraising consultant acquired by CDS in late 2010.
“The foundations remain the same,” Anderson says. “We build campaigns based on the word of God, which is an amazingly huge advantage most non-profits don’t have,” he notes, “and on our experience with what works well over time.”
What has changed about capital campaigns over the decades is the manner in which churches reach out to their parishioners.
“The personal touch is incredibly important,” says Anderson. “Thirty years ago, it would not be uncommon for a couple of deacons to sit down with you at the kitchen table to talk with you about what you were going to give,” he explains.
“And then in the past two decades alone, we’ve seen a tremendous shift in focus toward elaborate communications materials like websites, email and email newsletters, and PowerPoint presentations,” he adds.
The utility of these materials in a capital campaign can be lacking.
“How many emails do you get a day, and how many do you actually open?” Anderson asks. “Email someone a newsletter these days, and it has about as much chance of getting read as the Sunday bulletin.”
Capital campaigns need to focus on personal communication, Anderson reports, saying, “What we try to do is bring pastors and other church leaders into personal, one-on-few communications—maybe making the rounds of adult Sunday-school classes or other small groups, and sitting down with people for informal, talk-it-through conversations.”
This approach has been a part of what Anderson calls “the small-church version of our capital campaign,” tailored to churches of 150-200. “We have found this to be so effective that we are trying to see how we can implement it in larger churches as well,” he reports.
“Having a senior pastor sit down with a small group and say ‘Here is our vision, here is what I believe God has called us to do,’ and have a conversation from there is hugely more effective than just a beautiful campaign brochure,” Anderson states.
What bankers like
When a church seeks a loan and brings money raised from a capital campaign to the table, “The first thing we look at is if it is an internally or professionally orchestrated campaign,” says Dan Mikes, executive vice president and manager of the Church Banking Division of Walnut Creek, Calif.-based Bank of the West.
Banks like to see a campaign that is professionally run.
Professionally orchestrated campaigns result in more predictable—and lower—“shrinkage” levels, notes Mikes. “The rule of thumb is that with a professionally run campaign, you are likely to collect 90% of pledges over a three-year period, whereas you really don’t know with an internally orchestrated one.”
The private equity option
In addition to bank loans, churches that want new facilities can use a creative financing vehicle known as “private equity funding” to get the dollars they need.
In putting together private equity funding transactions for its client churches, Church Development Services (CDS) creates Limited Liability Cos. (LLCs) and sells shares to private investors, typically high net-worth individuals and some financial institutions, explains CDS CEO Glen Trematore.
Proceeds from share sales are loaned to the church for construction of a facility that the church agrees to buy upon completion. Investors get quarterly dividends as the church repays the loan, and also share in the proceeds when the church finally buys the completed building, i.e., “takes out the private equity.”
Recent CDS private equity clients, Trematore reports, include Church of the Harvest in Olive Branch, Miss., ($1.3 million) and United Believers Community Church in Kansas City, Mo., ($2.35 million). He adds that CDS also sometimes partners with traditional lending institutions in structuring private equity deals.