Fine Points of Financing

Financing for Church Construction
It’s More than a Business Decision — It’s a Ministry-Minded Choice

Healthy things grow. So does a healthy church.

With such growth, this church will eventually face a building project to accommodate its expanding congregation. Although typically this is a good problem to have, a construction project can literally make or break a ministry unless it is undertaken with proper planning and attention to detail. Every ministry embarking on such a project must employ due diligence in the planning process.

When planning to build your new church facility, evaluating the project’s alignment with your vision, mission and values is the first step. You must have a clear understanding of your church’s strategy and know where it is going. In addition, you must have the church’s administrative matters in order, most importantly its operations and financial reporting. Understand your church’s cash needs to support ministry, especially during construction, to make sure you allow enough lead time to raise the necessary funds prior to breaking ground.

Think Long-Term

Make sure your project not only will support immediate ministry needs but future ones as well. Prepare a master plan that allows for growth and expansion later. Identify all areas of risk for the project — its potential “hot spots” — and devise a contingency plan for each.

Assembling a complete and diverse team is fundamental to a successful project. Choose only partners that resonate “who” your church is — its vision, mission, and values. Start early. Involve the church board, capital campaign team, building committee, architects, builders, consultants and lenders in the early planning stages, and keep all of them well informed. Draw on their expertise and experience, and make sure you require clear and regular communication from your team to avoid any surprises.

Give ample consideration when hiring your project manager or general contractor. Having the right one onboard helps ensure a great new facility whereas making the wrong choice can devastate your ministry. Take your time. Review resumes, visit offices and call on each candidate’s previous clients to check references. Evaluate each company’s financial stability for the previous two years. Operating with a profit is a good indication they know how to appropriately bid jobs, both in project management and materials costing.

How to Win Support and Influence People

Spiritually, financially and physically, nothing is more difficult than spearheading your church building project without congregational support. Inform members of the plans early and often. If professional subcontractors happen to be part of your congregation and want to perform the work, ask them to sign a formal contract to avoid confusion later. You want to encourage those willing to give their prayer support, their time and their money.

A Few Words About the ‘M’ Word

Money is at the core of all construction projects. In addition to a solid budget, your church building project scope typically will adjust to the amount of money your church can raise, and the financing it can secure to bridge the gap between the raised capital and project cost.

Four types of financing sources should be evaluated: bond financing, conventional financing sources, denominational financing and credit union financing. Bond financing offers bonds to investors to fund the loan. It is a long-term, fixed-rate financing option, usually spread over a 20-year period, but upfront fees typically are higher than more conventional funding sources. Some bond companies commit to purchasing all the necessary bonds, guaranteeing the loan will be fully funded. These bonds are issued on a firm-underwriting basis but are very costly.

Other bond companies issue bonds on a best-efforts basis; sale of the bonds is not guaranteed, nor is funding. Note that prepayment charges usually apply within the first few years if a church raises enough money to pay off bond financing early.

Conventional financing sources, such as banks and savings-and-loans, are a more common alternative for financing a church construction project. Banks offer different rate and term options for financing. A variable- rate option usually is approved for the construction loan, and a balloon payment might apply. Banks are accustomed to financing for-profit commercial construction loans and might not have a good understanding of church operations and revenue sources. As a result, some impose restrictive loan covenants on churches, or on their leaders personally.

Sometimes denominational financing is available. In these instances, the source of funding for loans is pooled resources from investments by member churches. The advantage of this type of funding is that denominational lenders typically understands churches very well. In fact, they fully resonate with borrowing churches and their purposes.

However, denominational funding can be limited to the amount of monetary resources available within the fund, as well as restrictive of to whom it will, or can, lend. Finally, denominational lenders might not have the expertise in the area of construction loan administration; it is no easy task. As part of a church’s team, a lender must have this capability to ensure project success.

Credit unions are another source of financing for church construction loans. Typically, as member-owned financial cooperatives, credit unions intimately understand their members. A credit union that lends to churches understands ministry. And, depending on their field of membership, credit unions might have the ability to serve a broad spectrum of church denominations. Very few offer commercial lending because most are traditionally consumer oriented. Find a credit union that does commercial lending well and you get the best of both worlds — a ministry-minded lender.

Choose your lender wisely. Without extreme diligence in the administration of your construction loan, or the use of a third party to do so, your church will have unpaid invoices. When your lender approves your construction loan (a short-term loan for the construction period), it also should grant an approval for the permanent financing for your facility.

When your expansion program progresses as planned, your church likely will experience significant growth, which means more souls enter the Kingdom. This is most probable when you are faithful to completing your building project within budget and on schedule. The worst-case scenario is a half-completed building, depleted funds and a struggling ministry, so enter your project with prayer and have the congregation continuously pray.

Because when He builds it, they will come!

Kristi Watson is the marketing communications manager for Evangelical Christian Credit Union in Brea, Calif. For more help with the financing of your church construction project, contact an ECCU ministry development officer at 800.634.3228 ext. 1675 or e-mail ministry@eccu.org.