Interest rates have been bouncing off of historic lows for a number of months now. Consequently, it has been easy for churches with existing debt to be complacent about taking advantage of an excellent opportunity to refinance existing debt. At some point the market will anticipate that a sustained economic recovery and unprecedented levels of cash printing will result in inflationary pressures. Such factors can cause interest rates to move upward, perhaps significantly. Consequently, even churches facing prepayment penalties should do the math now, or seek help in doing the math, to determine the benefits of refinancing at this time. Bank of the West has provided more than $3 billion in loans to churches, yet it has never offered interest rates as low as are currently available. Recently, 10-year fixed interest rates are around 5%.
Bank of the West’s Religious Institution Banking division is seeing a slight increase in construction financing requests as the economy slowly recovers. As consumer sentiment improves, church leaders may be more comfortable with moving forward with expansion projects that have been on hold. When planning a project, be sure the loan commitment amount plus the cash on hand at loan closing equals the total cost to complete the project. Do not depend upon sources of funding that may not fully materialize, such as anticipated future pledge receipts or projected proceeds from an unsold building. Such dependence is especially risky in the current economy.
Dan Mikes is executive vice president and manager of religious institution banking for Bank of the West in San Ramon, Calif. For more information see www.bankofthewest.com/religiousbanking.