Sooner or later a growing church will face a need for increased space to do ministry, a need for refurbishing, or purchasing additional property for ministry expansion. Most of the time those churches will have a need to borrow money. Their chances of being approved for that loan are greatly enhanced if they have properly prepared to apply for the loan. Here are some factors that are important to know before you apply.


The Church Will Need to Have at Least 3 Years of Financial Records

A bank or financial lending institution is going to want to know how the church has been doing financially over the past few years. Usually they will request audited, or at least reviewed, financials from a certified public accountant. They are looking at financial growth over that period of time.


Know How Much You Can Borrow

As a general rule, a church can usually borrow between 2 ½ to 3 ½ times its annual income. An all too common mistake churches make is drawing up a plan that cost way more than the church can afford and then they fail in the process. Also, collateral value will be an important part of the process. A bank will want to make sure that if the loan goes into default they can sell the property to get their money back. Usually a bank will limit the amount to be borrowed at about 70% of the value of the property.


Make Sure You Can Complete a Capital Fundraising Campaign

Every bank application that I have seen will ask for capital campaign results. What the bank is looking to find out is not only how much money was raised, but what percentage of the church membership submitted pledge commitments to the campaign. They want to know that the membership is behind the church endeavor. The bank will also want to know whether the church employed a professional campaign consultant or did a “Do It Yourself.” DIY campaigns will commonly raise 60-100% of the churches annual income. Contrast that amount with a professionally run campaign raising 1.5 to 2.5 times annual income.


Be Prepared to Have a Loan Repayment Plan in Place

The obvious question a loan institute will ask is “how will you repay the loan?” By having excess cash every month or your financial statement approximate to the amount of the loan is one way to prove that you can repay the loan.

A bank is going to evaluate the management of the church; especially how the church manages its cash. A good rule of thumb is that a church needs to have at least 3 months of expenses in a “cash” account. Sometimes unexpected things can happen, but church expenses go on. Having a substantial cash reserve will make a bank feel better about its ability to make payments in difficult times.


Have a Detailed Construction Plan in Place

Does the church have constructions plans? Is there a particular contractor? How much will the construction cost? All of these and other questions should be answered before a church loan is applied for.

A church can greatly enhance its ability to obtain a loan by taking some steps before they apply.

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