Is Taking Out A Loan Right For Your Church? Six Things to Think About Before Borrowing – Ipass

In my over forty years of financing experience in commercial and non-sectarian banks and Christian financial intermediaries, I’ve witnessed God inspire individuals to do beautiful things for His Kingdom, and I’ve also seen a lot of errors online & no checks. Regardless of the size of the congregation or the loan, there are a few things to bear in mind whenever it comes to religions borrowing the money.

1. BEGIN WITH A WELL-CONSIDERED PLAN.

The church must agree on what to construct, how to build it, and how much money to borrow. Many churches approach me, excited to see their membership increase, and say, “We’d want to take out a loan for a new educational facility.” While the desire exists, a strategy must be in place to make it a reality. 

Determine the needs of your church first. Consult an architect to develop a design that best matches your requirements. Next, determine how much it will cost—finally, secure financial sources. In most cases, a mix of capital fundraising and borrowing is the most effective.

2. COMPUTE THE EXPENSES.

In Luke 14:28-30, a man is described as not calculating the construction expense. He may build the groundwork but not complete the project. Everyone who sees him begins to taunt and humiliate him. The same principles apply today to church construction: don’t build more than you can afford, and don’t cut shortcuts. 

While hiring an architect may seem to be a hefty upfront investment, I would always advocate it since their knowledge may wind up saving money in the long term. We employ a debt-to-income ratio at WatersEdge to calculate a church’s safe loan level. The maximum debt a church should take on is a loan equivalent to 25% of yearly budget revenues.

3. FIGURE OUT HOW TO ENGINEER COSTS WITHOUT CUTTING CORNERS.

If you know what you want to create but the cost is more than expected, there are many strategies to save costs without compromising the style of your structure. Lower-grade doors, vinyl baseboards instead of wooden ones, more efficient light fixtures, painted concrete instead of tile, or a metal structure without a brick exterior are just a few examples.

4. IF YOU’RE TRYING TO BUILD A DEBT-FREE COMPANY MAKE SURE YOU CAN RAISE MONEY FAST.

Inflation causes construction and material expenses to grow by 10% to 15% each year. A church may begin with a $1 million project, but after four years of saving and fundraising, the project becomes a $1.5 million endeavor. Taking out a loan may save your church money in the long term.

Debt-free construction also takes a lot longer than borrowing, which may be challenging for growing churches. One church I worked at gathered funds and cobbled together a building over ten years to avoid going into debt. “What hurts me the most is that we lost three generations of students that we couldn’t reach because we didn’t have the room,” the pastor said. We would have borrowed the money a long time ago if I had realized it would take this long.”

5. HOW ABOUT A REFINANCE?

If a church’s interest rate and monthly payment can be reduced, should it consider refinancing? Don’t think that banks are your only refinancing alternative. WatersEdge, a ministry-based lender, offers affordable rates and returns loan interest to the ministry. 

Another incentive to switch a church’s loan from a bank to a ministry-based lender is that we are more familiar with the problems of church finances and can better advise congregations when things become rough.

6. CONSIDER THE DEBT BURDEN SERIOUSLY.

Debt has been known to damage churches. A church’s most harmful perspective is that borrowing money isn’t such a big deal. The commitment is unbreakable. Borrowing to construct something new for your church might be as exciting as purchasing a new automobile. 

You don’t care how expensive the payments are or how long you’ll be making them when you drive it off the lot. However, after five or six months, the thrill of owning a new automobile wears off, and making those payments becomes a chore.

A church must be dedicated to rapidly repaying a debt. Most churches prioritize debt repayment via capital campaigns, allocating additional giving to principal payments or specific fundraising focuses. Many of our churches take out a 20-year loan, but most of them pay it off in five to seven years. That is excellent stewardship.