Church Loans Require Revamped Banking Relationship

It’s hard to imagine a church business affair that evokes more excitement and focus than a new sanctuary or children’s building, but what about the church loans necessary to make it all happen? Over the past 18 years, I have spent a lot of time visiting with churches to discuss their vision for physical plant expansion and related financing needs. Committees are assembled, and executive and administrative pastors carefully monitor interest rate fluctuations hoping to lock their rate at the best time. Then, the results of everyone’s efforts are ceremoniously reported to the congregation.

In sharp contrast, few administrative topics are more mundane than cash management. In spite of its potentially significant long-term financial and operational impact, the treasury management function is rarely reviewed, competitively shopped or modernized. There is no committee and no fanfare, usually just a banker and church business administrator in a small office, one doing a lot of talking and the other tapping his foot and occasionally glancing at his watch.

Without question, churches should carefully review their current banking relationship. The administrator tasked with this stewardship function should be encouraged to take the time to visit with a qualified cash management consultant, preferably one with numerous other church clients. The administrator will then better understand the unique needs and objectives of the church.

Church Banking Strategies

In meeting with a church banking specialist, one objective is to competitively shop money market interest rates, earnings credits rates and bank service charges and fees. However, of potentially greater significance are the numerous technological advances, new products and changes within the financial industry that can enhance church operations. Increased operational efficiency frees up more time for the work of the ministry.

Don’t limit yourself to banks with a nearby branch location. This tendency is based on a desire to minimize the risks associated with carrying cash deposits long distances. Recently, though, contributions are increasingly comprised of physical checks, automated online bill pay and other forms of electronic funds transfers. Furthermore, when moving to a new bank relationship, you can retain your local depository relationship exclusively for your cash and coin deposits. Those funds can be moved to your new bank electronically, perhaps weekly. The bidding bank will factor the cost of the additional bank relationship into the competitive analysis.

Your deposit accounts are probably on “account analysis,” whereby your deposit balances generate “earnings credits,” which, in most cases, can fully offset the service charges you may be incurring for branch services, check processing and any other bank services or products you may use.

Begin the process by providing the bidding bank copies of your account analysis statements for three consecutive recent months. Ask them to analyze your transaction volumes and the products you are using. They will return with a comparison illustrating what their charges would have been for the same services. They should also show you what their published earnings credit rates were during those same three months. If your balances are sufficient to generate excess earnings credits you may be able to take advantage of additional banking services at no cost. If no additional services are desired, you should implement a strategy to transfer the excess balances to a higher-yielding money market account, certificate of deposit or a fixed income investment.