The money is out there, its just not as easy to get. Banks are requiring many times the level of documentation and are lending less. A year ago, a church could reasonably expect to borrow 80% of the appraised value of a completed project (80% Loan to Value or LTV), today if you are fortunate, the lenders may lend you 80% of the project cost (as opposed to project value) and some lenders are talking 60% and 65% loans.

As one lender recently stated to me, “cash flow is King, and cash on hand is Queen.” What many lenders will require to see today is at least 20% of your project cost in cash and a monthly net positive cash flow that is 125% of the loan payment. These criteria make it very difficult for the church to borrow today without significant and time consuming preparation. To qualify for a loan, the church needs money in the bank and a history of positive cash flow. Most churches are not in this situation, even though they have an immediate need to build.

There are three things a church can do to prepare that will help it become qualified to borrow for construction:

1. Reduce Expenses. As the past treasurer of my church I can assure you that almost every budget can be cut, often dramatically. It’s never easy, but it can be done. The good news is that trimming the expense side of the ministry requires only commitment and a sharp knife.
2. Increase Income. You need to have the largest possible gap (positive, that is) between income and expense. Increasing income through tithes and offerings is 50% of that battle.
3. Increase cash on hand. Put a line item in the budget for debt retirement even before you get a loan and put the money into savings. Add to this amount whatever you can by increasing giving and decreasing expenses.

Increasing income and cash on hand can both be accomplished through a church capital campaign. (Follow this link to learn more about a church capital campaign. Historically, the vast majority of churches have waited until they were about to build or were in the process before beginning a capital campaign. I believe that many churches that need to build now will not be able to get financing and begin construction until late this year or even this time next year because they cannot meet the new lending requirements of cash on hand and cash flow. Although the church may have equity, even cash equity, if they cannot show a history of positive cash flow, they probably will not be able to get adequate financing.

I believe that many churches are going to come to the hard realization that they cannot get the financing they need and that to qualify will take them many months of demonstrated financial change. I believe we will see a large number of churches want to enter into capital campaigns very soon so they may build next year. Remember, the banks will want to see 6-12 months of reduced expenses and increased giving (due in large part to a church capital campaign) before approving the church loan. The wise church will plan ahead and get their campaign underway as soon as possible. To this anticipated need, we are bringing on additional staff and looking at creative and cost effective ways to help churches execute their capital campaigns.