This is why a church consultant can prove to be a valuable resource for the church. A church consultant understands the church financing arena and put you in a better position to obtain the needed church financing. Often times churches only have one shot at obtaining an approval for a church loan, very seldom will you have another opportunity from a particular Christian loan lender after a church loan has been denied. This is my initial preparation and understanding your qualifying church financing boundaries in essential.

A church consultant will not only help your prepare a complete church loan package but they will also allow you to explore you church loan options through multiple lenders. Remember; never put all you eggs in one basket. It is often a daunting task for a church to work with one lender let alone three to four simultaneously., but this is what is necessary to put your church in the best position with your church loan. Through the proper preparation of a loan package and years of experience a church consultant can provide you with multiple church loans from which to choose and all you have to do is work with a single individual to get this accomplished.

I would like to provide your ministry with a couple of tips when working with a church consultant. Most consultants or church loan brokers would never want to disclose this information but I feel my calling is to help churches through the financing process and thus I want to help you in any way possible.

Before your church embarks on securing a church loan there are a number of questions you should ask yourself. These questions will allow you to better understand the qualifying process and put your ministry in a better position to procure the needed church financing. It should be noted that different Christian loan lenders have different qualifying boundaries and the following is simply a generality of what you should expect to find in the church financing (e.g. church loan) market.

A church can typically qualify for a church loan for about 3 to 4 times its current, annual, gross income. Given a church with an annual income of $100,000, you should expect the maximum church loan for which a Christian loan lender would qualify the church would be in the $300,000-$400,000 range. Please be aware that theses figures represent maximum church indebtedness . If your ministry has outstanding church loan debt, the amount of the church loan that you would qualify for would be reduced by the amount of current church loan debt.

This question is often overlooked by many churches in the process of obtaining a church loan. The relevance of this question relates to whether or not the church can demonstrate an ability to service the church loan from their current cash flow. The best way to determine if your church can cash flow the needed church loan is to look at your income statement and add all “non-recurring” expenses to your net income. If this total is equal to or greater then the anticipated annual payments from the church loan then you can answer yes to the above question. To put it simply, Christian loan lenders are looked for at least a 1 to 1 coverage ratio with the new church loan.

Before providing insight into this question I want to first point out that all churches should expect an appraisal to be done on all collateral during the closing process.

When making a church loan, most Christian loan lenders require at least 25%-30% equity in the project by the church. This equity requirement will be heavily dependent on the nature of the transaction and does not always have to be satisfied with church cash. For instance, if the church is wanting to purchase vacant land and has no other collateral to serve as security on the church loan they will generally be required to put up 50% equity in the form of cash to purchase the land. This scenario changes if the church has a current facility (pre-existing collateral) and is wanting to obtain a church loan for the purpose of purchasing vacant land. Under this scenario, Christian loan lenders will do one of two things; they will either loan you 70%-75% of the current collateral and 50% of the vacant land value or they will lend the church 70%-75% of the total value of both properties. Equity requirements can be complicated as they truly depend on the Christian loan lender be used for the church loan.

The majority of Christian loan lenders want to see a debt service ratio between 30% and 33% of the churches annual income. This means that the anticipated debt service should not be more then 33% of your annual income. Intuitively, this makes perfect sense using a simple pie chart example. If your church’s income represents 100% of the pie, then each of the expenses , or pieces of the pie, cannot in-total be greater then 100%. Thus, if salary expenses represent 40% and operational expenses represent 30%, the piece of the pie representing your church’s debt service with the new church loan can be no greater then 30%. This examples, also provides valuable insight into setting a church budget.

Although there are numerous other factors that play a role in the qualifying process (such as pastoral character and experience, how long the church has been in existence, and attendance growth), being able to properly answer the above questions will put your ministry in a better position to obtain the needed church loan.

* 20 to 30 year church loans which allow the church to decide if they want a quarterly, annual, 3 year, 5 year, or 7 year rate adjustment period. The rate is fixed over the desired period and is then reviewed for a possible adjustment. Generally, there is both a period and lifetime interest-rate ceiling set by the Christian loan lender at which the rate cannot go beyond. The rates available on these loans are generally a bit higher then those available on balloon church loans but the church avoids the costs associated with refinancing when the balloon is due. In most cases these church loans carry no pre-payment penalty if paid-off with church capital or refinanced with the same lender. Borrowers should expect to pay the between 1.5 and 2 points to acquire this type of financing.

* 3 to 5 year fixed rate, balloon, church loans which give the church the option of 20 to 30 year amortization periods. These church loans are best suited for churches who want to take advantage of low interest rates and plan to retire the debt in 3 to 5 years through capital stewardship campaign gifts or other reliable means. We also recommend this type of loan for churches that are planning to renovate (or do improvements to) their facility in 3 to 5 years and will need to refinance and obtain additional funds at that time. Such financing is also appropriate for churches who have (or are planning) to sell their existing location but have yet to receive the monies from the transaction. The interest rate available on these church loans will typically be the lowest available and borrowers should expect to pay the lender 1 to 1.5 points for the financing. These loans generally only carry a pre-payment penalty if refinanced by an alternative lender.

* 7 to 10 year fixed rate, balloon, church loans which give the church the option of 20 to 30 year amortization periods. We recommend intermediate-term financing to churches that like the safety provided by lengthy fixed rate funding and still want an adequate interest rate. Furthermore, these loans are great for churches that do not see themselves moving within the next 3 to 5 years and feel that they will not need any financing for renovation or improvement purposes in the near future. Typically, the interest rates on these loans will be 1 to 2% higher then those available on a 3 or 5 year balloon and the borrower should expect to pay the same loan points and pre-payment penalties as those mentioned above.

Construction loans convertible to permanent financing

* Through are lending partners we are able to provide church construction loans which convert to permanent financing once all loan proceeds have been used. This allows churches to avoid the process of seeking financing from multiple lenders, enables them to lock in guaranteed rates and terms prior to construction, and reduces the time spent preparing a loan package as only one set of documents are necessary. During the construction period the church makes interest-only payments based on the funds which have been disbursed. After all church loan proceeds have been exhausted the church construction loan is converted to permanent financing with the churches payment being based on the agreed upon terms prior to the construction period. Combining the two forms of funding means there is no re-qualifying, re-appraisals, or any additional closing costs.

* Often times churches need more construction financing then is available through traditional means to meet both current and long-term congregational growth. Church 1^st has a program specifically designed for churches that need to maximize square footage while still being able to financially qualify. The program includes architectural and engineering services, church development services, accounting services, project management, complete ground up construction, a church capital stewardship campaign, as well as church construction and permanent financing. The program also has the unique aspect of converting all payments during construction into the permanent church loan which allows the church to avoid payments while their facility is being constructed. Churches can generally put as little as 10% down and can qualify for 30% to 40% more then what would be possible through a traditional lender. To qualify for the program churches must meet at a minimum the following requirements; own land or be in the process of purchasing land, have annual income that exceeds $60,000, be in existence for more then three years, and be incorporated as a 501 (c) 3 organization.

For churches interested in 20 to 25 year fixed-rate financing we have a number of partners which will provide church bond financing for your churches project. Church bond financing can be used to facilitate the financing of real-estate transactions including purchase, refinance, construction, and renovation. The bonds are sold to both internal and external investors looking for a fixed return over their holding period. In general, bond programs do not have a pre-payment penalty, require no personal guarantees, and allow the funds to be used for almost any purpose. The major disadvantages of a bond program are the high fees, the length of time it takes to close and the required paperwork which often includes audited financials and a certified appraisal of the collateral.