Questions For Building
Lately, I have had several pastors ask me what our process looked like when we borrowed money for a church project. I thought I should write my thoughts down so that anyone else could take a look. Here is the disclaimer: I am not a financing expert and this is only our process. Yours might look a lot different.
The problem with talking to ‘experts’ is that most of them have an agenda. They will either make or lose money on your church’s decision, so it is difficult to know when they are shooting straight with you.
In the last 7 years we have had 2 major building changes and 2 property purchases. We have borrowed money 3 different times from the same bank. Here are the questions we answered:
Is God leading us to make this change? This seems obvious, but sometimes our own personal agendas get in the way. We think we should build or buy in order to stay up with the other churches.
What is our philosophy on borrowing money? Some people’s philosophy is absolutely zero debt. We are not that way. We accept long-term, low interest financing to make progress. We see that we pay fees/profit to companies for other services. Why is it such a big deal to pay a bank profit for the money they are allowing you to borrow. I can see it both ways, however, you will need to meet with your leadership team to determine what boundaries you will make in financing options (more on this in a minute).
How do we raise money? Before you can ever think about raising money, you have to realize as pastor that you will have to put your neck on the line. Your whole reputation will be at risk. If you are not willing to do that, then don’t start. Theoretically, your pride should be zero anyway, right!? There is a point of no return where you believe God is leading, your leadership is supporting, and you jump into it!
If you are going to pay cash for everything, then obviously you have to have it! Start saving and finding ways to raise it. You can do it yourself, you can hire a company that will coach you through it like Gage. Or, you can hire a full service firm. If you go that route, I recommend Injoy and my good friend Joe Sangl.
All of those routes are also key when borrowing money. If your current financial status does not support a new payment (mortgage), then you will need to get your church’s finances in a place where it looks good to a bank.
What about financing? Do you have any equity? Do you own property already? Do you have cash? Answering these questions are important to figuring out your next play with the bank. Most church plants do not own anything (except some equipment). So in that case, you need to start saving cash asap.
Banks want to see at least 3 years of stable, financial records. They want to see that you are able to afford the new mortgage with at least 20% extra coming in each month. Most want 20% as a down payment.
Having said all that, we purchased our first property with 18months of financial records and NO money down. If God is in it, then something will open up. That takes prayer and some hard work.
What Bank do we use? Do we currently have a good relationship with a bank? Does anyone in our church have a solid and significant relationship with a bank? In our first purchase, we sent our measly financial records to 5 banks and they ALL turned us down. It was not until we talked to one of our member’s banks (he was a business man and did a lot of relations with Prosperity Bank) that we started making progress. I want to make this clear: his relationship only got us in the door. Our church had to stand on its own.
What do we tell the Bank? We had to prove to the bank that we were growing numerically and financially stable. With both major loans we made an actual sales presentation complete with charts, graphs, spreadsheets, financial records. We showed our growth track and keys to growth: strong leadership, low expenses, marketing, Spirit of God. When churches are young and finances are tight, it is important to show the past growth record and projections over the next 3 years if and when the building is purchased/built. Having said that, NO presentation speaks as loud as money. If your finances are not stable and there is not enough cash flow coming in, you can’t fake a banker. In our case, our finances weren’t bad, but they weren’t exceptional either. We were on the border. So, our relationship and presentation went a long way in presenting ourselves as a stable ‘business opportunity’ for them.
What about bond financing? During our last round of loan negotiations, we contacted a bond company out of Dallas. They offer financing to churches through the sell of bonds. They do all the work for you. Here are the benefits: they loan money to churches when finances are really tight. They make riskier loans than traditional banks. The negative is that you pay a much higher fee for their service. To me, this is the route to go when you really believe that you are supposed to move forward, but banks won’t help out.
What do we tell the congregation? We were very clear with our congregation all along the way. We would wait until we knew all the information relative and needed to make a decision and then present the options to the congregation during a ‘business meeting’. When we present news, we want to make sure the congregation is confident we have done our research. That way questions are answered promptly.
If you want a sample of what we presented to the bank or have any other questions, please let me know.
To see the actual steps we took in a timeline sequence, check out this post.