By: Charity Kuehn of Union Bank and Trust, NACDB member and Certified Church Consultant
God has blessed you and your church family with many, many gifts. You have been good stewards of those blessings, but the world isn’t the same as it used to be. Growth is expensive and requires you to have good financial partners who will help to guide you through the challenges of that growth.
As the Assistant Vice President of Church Financing at Union Bank, I want to share with you some important points you will need to consider as you prepare to request a loan from a financial institution. Union Bank’s Church financing area lends all over the United States, with a strong focus on the Central and Midwest parts of the country. I have worked with many different denominations and in cities with varying economic circumstances. There is always a common thread among church loans that are successfully approved: preparation.
You will find out that I am a pretty open person and I intend to be very candid about what a financial institution is truly evaluating. There should really be no secrets between the bank and the church as you go through this process together. As the borrower, you need to fully understand what your bank is weighing in their decision.
Making a commitment to borrow funds requires some documentation to be gathered for review by your board and your lender. You will need to have your church’s Articles and By-laws available to include with your loan request. Because board members and signers often change for a church, it is a good idea to provide documentation showing who exactly can make the decision to borrow and that the church board has approved the church to make a borrowing request. Having this documentation up-front will show your lender that you are organized, prepared and that the process to put loan documents together will be smooth.
Church Family History
Be ready to tell your story. A powerful component to your request is being able to show the financial institution your church’s vision for your future. Provide a history of your church and include information about the church leadership and pastor. Discuss in your summary of the church the future growth plans in detail. Explain why you feel you will grow, what audience you are targeting in your growth efforts, the tools you are using to reach them and what success or trends you have so far. In essence, you want your lender to want to join your church. Share your passion.
Campaign for Pledges
As a church, you need to be comfortable and committed to a growth project in every way. A successful fund raising campaign can be solid proof of this commitment. Provide as much detailed information about the commitments you have as well as the funds you have received as you can. I suggest a detailed report of each pledge, how much has been received so far and what is left to collect. Also showing your anticipated timeline for receiving the funds is helpful for your lender to see how much you will likely need over the course of the project. For any financial institution that truly committed to church financing, they will understand the power of a great campaign and not discount or dismiss it.
Presenting finances that have an accountant’s credibility behind them will give you a tremendous boost in the eyes of your lender. No matter what bank or financial institution you work with, they are going to want to see your church’s financial history. Many times the way a church handles their financials today is the same as it was when the church began 10 or 15 or sometimes even 40 years ago. When you started your church and there were only a few members, your accounting system was simple and easy to explain to the membership and the board. When you ask a bank to decipher your “system,” it can limit the number of financial institutions willing to consider your request. I, personally, love to get the financials from a new church, but it can often take multiple conversations in order to make sure I am giving the church a fair look because the financials are difficult to interpret. My first recommendation is to have an accountant do a full review of your finances BEFORE you make your request for financing. Any church with an annual giving budget of more than $350,000 per year should consider getting a professional involved on an annual basis. If nothing else, an accountant can compile your financials into a format that will be more easily presented in a loan request.
Know your numbers
There are a few key ratios most financial institutions will evaluate as they look at your request. Here are a couple of benchmarks that I use at Union Bank to do an initial evaluation of a loan request.
- Is the loan request less than 4x the annual contributions?
- Does the annual loan payment stay below $600 per giving unit (a giving unit is an individual or family in your church who gives on a regular basis)
- Does the average annual amount giving by each giving unit exceed $1200? (exceeding in this case is good)
- Is the annual debt payment less than 30% of total gross revenue of the church?
These numbers can give you a good idea of where you will stand on first glance with a financial institution. If you are far outside of any of these ratios, it is a good idea to analyze why that may be and do one of two things.
- You can either adjust your project to be more in line with what a lender will find acceptable.
- Prepare a strong argument about how the risk of being outside of that ratio can be mitigated. Knowing where your weaker points are before you put your request out for review not only helps you understand what challenges you have, but may also bring to light some areas that should be re-evaluated.
Ask the important questions of your financial institution.
- Do they understand churches and their needs?
- Are they willing to truly listen to you?
- Does the individual you are working with seem interested in only the transaction or do they want to be a part of your financial team?
Knowing these answers can help guide you to the right financial institution for your church. A good church lender knows that not every project is ready for approval from the moment you meet. Many projects take time and effort to get the church and the project to the point that it makes sense for them. The right lender is willing to take that time to walk side by side with you as you are guided by God toward what is best for your church.
I wish everyone who is beginning this journey my very best. If I can be a resource for you don’t hesitate to contact me. I am always glad to simply discuss and brainstorm.