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.