What You Need to Know Before Applying for That Bank Loan
Churches are finding it more and more difficult to secure bank financing. Before building that new building, purchasing the land, or doing the renovation, you are probably going to need a loan approval. Here is what you need to know:
- If a bank makes the loan they probably will loan you a maximum of 2 ½ to 3 times your annual income. In other words, whatever your tithes and offerings are, you can probably borrow a multiple of that figure. If your income is $500,000, you can probably borrow $1,250,000 to $1,500,000. If your income is $200,000, you can probably borrow $500,000 to $600,000.
- An appraisal will need to be done to ascertain the market value of the property. Banks like to stay under 70% loan to value. In other words, if the appraisal determines the building or land is worth $1,000,000, a bank may loan up to $700,000. (As long as that figure is not more than 2 ½ to 3 times your annual income.)
- A bank is going to want you to put some cash into the project – usually 20 to 30%. For a million-dollar purchase, you will more than likely need to have between $200,000 and $300,000 cash to put into the project.
- You will need to show that you can afford the payment. You will have to prove to the bank that if the payment is $20,000 per month, you have the money to make that payment every month. There will be other expenses such as insurance, maintenance, utilities, etc. You will have to prove those expenses can be met.
- The bank will probably want to see the results of your capital fundraising campaign. They will want to know if the church members are supporting the project. They will want to know how much money was in the pledges; what percentage of the church membership participated in the pledges; how the capital fundraising campaign was conducted.
Before you apply for that loan, make sure you are properly prepared. It will increase your chances of approval.