Some churches find it very easy to pay for building a church, while for others it's a constant source of stress. We could talk more about some of the things that could put your church in one group or the other later, but for now, let's look at the three main ways to pay for church construction and their pros and cons.
Traditional loans, bond sales, and capital stewardship campaigns are the three main ways that church construction can be paid for (in part or in full). Each of the first two, loans and bonds, comes in a number of different "flavours." Even though capital campaigns can be used to get money, they are not used as often as loans or bonds as the only way to get money. Most of the time, capital stewardship campaigns go along with a loan or bond. More to come on that...
For a conventional loan, you go to a direct lender or broker and get a construction loan based on the future value of the facilities you plan to build, using your assets as collateral. In a traditional loan, you borrow all the money from a single lender. Most construction loans are easy to turn into mortgages when the building is done. At the time the loan converts, many lenders will let you do this without a separate closing.
Bonds are a (usually public) way for many people to "lend" you money by buying them. Your church would work with a bond company that specialises in putting together and marketing the offering. As the bond company sells the bonds, your church gets the money.
The amount of money you can borrow will depend on your income and cash flow. This is true for both traditional loans and bond sales. One financial rule of thumb says that the church can only borrow between 3 and 4 times their current income. If the total income of the church for the year is $150,000, you can probably only borrow between $450,000 and $600,000. Cash flow and equity are two other things that can affect how much you can borrow. No matter if it's a bond or a loan, the lender will want to know how you will pay it back with the money you have now.
It's easy to get a loan, but it's much harder to pay it back. Almost never, a church that takes 20 years to pay off a loan should be ashamed of itself. Most churches should have a plan for paying off their debt in 7 years that can actually work. Interest is money that the church gives to the world to help the world's economy. This money should stay in the Kingdom and be used to pay for work in the Kingdom. Now we can talk about the third way to get money: Capital Stewardship.
Over the course of a 3-year campaign, a capital stewardship campaign will usually raise 1.5 to 3 times your church's total income. Over the past few decades, thousands of churches have run campaigns with the help of professionals. The result is a large statistical universe, from which we learn that most of these churches raise 1.5 to 3 times their current income. This analysis matches my own experience working with churches. A capital campaign can help pay for a building project in three ways. Some churches might want to stay out of debt and save money for building. Others may choose to increase their ability to borrow by getting more money from a stewardship campaign. Lastly, many people will take the middle path and use a capital stewardship campaign to pay off their debt as quickly as possible. Most people use this third method.
In three years, a capital stewardship campaign should easily pay off at least half of the church's construction debt. I think that if the church can pay off half of its debt in three years, it should be able to pay off the other half in the following four years. I say this because I think the church will grow in size and income during the time it takes to pay off the debt, and it would be possible for it to run a second capital campaign when the first one is over. Hopefully, the church will be thinking about its next expansion plans before the 7 years are up. This is a great reason to pay off all of its debts as soon as possible.
(This is an excerpt from Stephen Anderson's eBook "Before You Build," which can be found on the ChurchBizOnline.com website.
Steve Anderson is a church building consultant, a contributing editor for Church & Worship Technology Magazine, and the author of an upcoming eBook called "Before You Build": Practical Tips and Experienced Advice to Prepare Your Church for a Building Program.
