Financing

Begin the New Church Design of Your Dreams by Building Financial Strength

One thing church leaders can depend on: the cost of church building construction is likely to rise. While it’s prudent to address church building or renovation needs right away, it may not always be possible or practical. Here are some reasons why you might need to delay construction and how you can establish financial strength in the meantime.

Why Your Church Building Might Have to Wait

There are many reasons why immediately might not be the best time to make the commitment to a church building project. Perhaps you already know you can’t raise the funds you need right now for the church design you want. Sometimes, you work with architects to design the church building that meets the needs of your church vision, but you realize that you just can’t fund the amount you need to begin the church building. Or it’s possible the bank turned down a loan application for one reason or another.

No matter the cause, it doesn’t have to be the end of your church building story. Instead, it’s an opportunity to take a pause and strengthen your financial situation so that when the time is right, you will be ready and able to acquire the funding you need to build on that church vision.

Building a Solid Financial Foundation for Your Church Vision

So, what can you do to establish financial strength? One of the most important commitments you can make is to operate within the church’s income. Don’t spend more than you bring in. Show bankers your commitment to financial responsibility. Also, make sure to keep good financial records, and to have clear accountabilities and safeguards in place for all financial matters with both staff and volunteers.

It’s also not too early to begin saving for your future church building project. Once you’ve got your church vision established, talk about how a new church design or remodeling project will help bring that vision into reality. Create a church building fund and invite people to begin contributing with their money and their prayers.

How Other Numbers Support the New Church Design of Your Dreams

Some preparations don’t involve financial numbers, but they are just as important. As we’ve noted before, lenders aren’t just looking at the finances. They want to know if you have a thriving and growing church that can support this church design and construction project. Do you have more people coming to worship each year? Is the number of giving units increasing as well? Keeping good records on attendance and giving can bolster your loan application down the road. When you can prove your church is growing numerically, bankers are more willing to lend.

Of course, the spiritual side of any church vision is the most important. You wouldn’t want to begin a church building project without having that in place. But when you’re looking to build, you also need to have your financial house in good order, which is why we recommend these steps for all church leaders, at any point in the church design and construction process.

To learn more about what we recommend for church leaders, sign up for our free i3 webinars today.

2022-03-15T18:12:40+00:00 March 15th, 2022|Church Building, Church Design, Financing|

Impress Your Financial Institution with a Comprehensive Church Building Budget

Preparation is a key value in any church design and construction project. One important step is to develop a comprehensive and realistic church building budget before you begin conversations with your lending institution. When it’s clear that you’ve done your homework, you can impress your bankers, and help to receive the most favorable financial package.

Understanding the Four Church Building Budget Categories

There’s much more to a comprehensive church building budget than just the cost of the structure itself—though that will usually be the largest portion of the budget. Before that can begin, there must be site work to prepare the land for your building and bring in water, sewer, gas, and electric lines. If you’re replacing or remodeling an existing church building, some of those elements might be in place, but updating them to meet the latest codes and standards might come with additional costs. Then, when you’re done, you’ve got to install landscaping, parking, and other site amenities.

Before the church design can become reality, there are also all sorts of costs associated with approvals, fees, and permits. You’ll need to budget for architectural plans and various kinds of engineering drawings of your church design that will be required to receive permits and various and many times numerous government permit fees.

Finally, once the shell of the church building is constructed, you need to spend money on what’s called FF&E, or furnishings, fixtures and equipment. This includes everything from the tables and chairs in the classrooms to phone systems for offices and live stream equipment for your online services.

Thinking Beyond Your Church Design When Budgeting

Those church building categories are central to the budget, but they’re not all. Anyone who has put together a budget during the initial design phase of a project knows that it’s really a “working document,” because things will change along the way. We always recommend a contingency line in budgets because every project needs a safety net for unexpected costs.

For example, we’ve heard a lot lately about “supply chain issues,” and those could impact your budget’s bottom line as well. Perhaps you ordered a video projector for your worship center, but the manufacturer can’t get the parts they need, and they say it will be another six months before the video projector is ready. You need the video projector sooner than that, so you might have to choose a different model or find it elsewhere at a higher price.

Reckoning on Inflation in Turbulent Times

Another important element to include in any realistic church design and construction budget is inflation. As we know all too well, turbulent times and supply chain issues can cause costs to rise over time. Responsible and sensible church leaders will factor that into their comprehensive budget, and lending institutions are likely to look more favorably on a loan application that takes such issues into account.

Good stewardship is one hallmark of a thriving church. No matter where you are in your church design and building process, we want to support you in being good stewards. This is why we continue to share our free i3 webinars every year, so sign up for our webinars today.

2022-03-08T21:12:33+00:00 March 8th, 2022|Church Building, Church Design, Financing|

Key Elements of a Church Building Capital Stewardship Campaign

In addition to obtaining a loan to finance a church building project, church leaders often consider conducting capital campaigns. Here are some strategies for raising funds to support your new church building, or your vision for remodeling an existing church design. One key point we will discuss is the value of working with a professional consultant.

Church Building Capital Campaign Process and Timing

The goal of a capital campaign for your church design and construction project is to raise the funding you need to complete the project, usually over a two or three-year timeframe. The campaign itself begins with obtaining monetary pledges, and it’s best to set aside between four to six months to successfully complete the stewardship portion of a capital campaign.

What happens during that time? The first half is spent with planning and preparation. You need to get team leaders excited about the project and geared up to talk about it. It’s also when you might reach out to certain individuals in your church who might be willing to give leadership or matching-fund donations that can help spur others to give.

The second half of the time is the “public” campaign, where you talk about the new church design or remodeling project in worship services and emphasize how the church building will better fulfill your church vision for ministry in the community. The entire process culminates in a pledge day when people in the congregation are asked to make their financial pledge.

Holding Your Church Design Stewardship Campaign in the Right Season

Timing is very important. You don’t want to be doing all this work when folks are distracted by gift-buying, holiday parties, and other preparations for Christmas, for example. Summer is also not the ideal time for a stewardship campaign, because so many people take vacation and might miss out on all the excitement that you’re trying to generate.

This is why we recommend that you plan to have the public part of your capital campaign either in the fall, from mid-September through mid-November, or in the spring, sometime from February through May. With the spring, it’s a good idea to either plan to finish the campaign right before Easter or start it right after Easter and finish before summer.

Why You Want Professional Fundraising Support

Nationally, the average capital stewardship campaign raises one to two times the annual church budget over the course of a campaign. However, if a professional stewardship campaign consultant is not used, then the average amount goes down by fifty percent. In other words, investing in a professional consultant could double the money raised.

Here’s another reason to invest in a professional fundraising company. A lender is going to look more favorably on pledges raised by a professional than those raised in a self-led campaign, so if you try to raise money yourself, the banker will probably loan you less. These are the reasons why it’s worth the investment to get a professional consulting firm involved. We provide a list of such consultants on our website.

Also on our website is a list of our upcoming free i3 webinars, where we share important tips like this to help you successfully complete your church design and construction project.

2022-02-22T21:25:05+00:00 February 22nd, 2022|Church Building, Church Design, Financing|

Consider Funding Alternatives for Church Building Construction

Fortunately, when it comes to ways to fund your church building project, there are options. Borrowing from a financial institution is a common choice, and we’ve covered that in multiple ways. We also touched on one non-traditional alternative, which is borrowing from a denominational lender. Here’s more on that option, and suggestions of other alternatives, as well.

Church Building Funding through Denominational Lenders

If your church is affiliated, you can often access funding opportunities through Christian denominational lenders. One upside of this option is that they will understand your church vision for ministry and what you’re hoping to do with your new church building or remodeling project.  Often these organizations do not have to stick to the appraisal like a bank would.  This translates to them being able to lend more than a bank should you receive a low appraisal.

Sometimes the denominational authority will also have additional money allocated for mission opportunities that you can use to fund your church design or building project, above and beyond what a normal bank would do for you. The downside with denominational lending is that many times their interest rate can be a little higher than a traditional commercial lender.

The Self-Funding Option for Church Design and Construction

Another option is to self-fund at least some portion of your church building. Commonly, this means partnering with an organization that brings together individuals to invest in your project for a financial return. In other words, you are inviting people to give you money and agreeing to give them back their money, plus a percentage, over a set period of time.

With this option, you set the terms, such as interest rate and repayment timing. As with a bank, you get the money up front to complete your church design and construct your church building. Of course, you still have to make sure money will be coming in to pay those people back over time.

Caveats about Self-Funding

We typically see self-funding as a way that church leaders finance smaller projects, up to several hundred thousand dollars, rather than a full church building project costing $1 million or more.

With self-funding, you also don’t have to work with an organization; you can create an organization to handle this process yourself. However, it makes you responsible for all the paperwork that involves: tax returns, reporting, payments, etc. So, it’s important to make certain, if you choose this option, that you’ve got the necessary skills in your church membership and/or leadership to handle these important details.

The good news is that there are multiple ways to get people on board with your church building project. Getting them excited about the new church design or remodeling options is just the start. You need people to make a commitment, a promise to fund your church building project, and that’s where the capital campaign comes in. We’ll explore this step in more depth in our next post, but it’s important to state up front that working with a professional organization to help you run your campaign will increase your chances of success, especially since the campaign process is constantly changing.

To keep up with the latest in all the changing aspects of church design and construction, sign up to attend our free i3 webinars.

2022-02-15T21:24:15+00:00 February 15th, 2022|Church Building, Church Design, Financing|

Church Building Steps from Start to Finish: Funding

As we continue working through the church building process step by step, it’s time to talk funding. You should now have a good sense of how much money will be required to complete the church building process from the budget developed in the last step. Now it’s time to figure out where that money will come from.

Preparing a Church Building Stewardship Campaign

Obviously, you will need to ask for the funds required to fulfill your ministry vision of a new or remodeled church facility. The funds will come from three basic sources: gifts, pledges, and financing. In order to raise funds in a responsible manner, you will need to plan your stewardship campaign in a wise and thoughtful way. Whether you have knowledgeable attendees in your church who can conduct this campaign or if you hire a consultant (recommended in most cases) to guide and support your efforts, there are some basic elements that will need your attention up front.

Timing Your Church Building Stewardship Campaign

There are certain key elements  to a successful stewardship campaign, and one of them is good timing. You don’t want to raise money in winter because between the holidays and winter vacations, people are distracted by everything else going on — and are likely spending more money than usual, which could make them feel they don’t have funds available to support your church building project.

Summer is also not a good time for a stewardship campaign because many people are away on vacation. Therefore, the consensus of opinion is that the best times to ask for gifts and pledges for your new church design and building project are in the spring or the fall.

Preparing the Way for the New Church Design with Lending Institutions

Financing is an integral element of almost every church building project as raising enough money through gifts and pledges isn’t always possible. It’s important to begin thinking about the financing early, as there will be much financial information you need to gather in preparation for making the loan request. Here is a handy checklist of the different types of materials that you will need to have available when you begin conversations with lenders.

You’ll also want to find a lending institution that has worked with churches before. There are some elements to financing that are specific to churches. Lenders who are not familiar with the differences between thriving and struggling churches, for example, might tend to bundle all types of churches together. This can lead them to offer you either too much or not enough financing than your church’s financial health can truly support.

Much of this funding work can — and should — begin concurrently with the earlier, church design phase. It’s never too early to get a sense of what you can afford and how you will make that church design into a reality.

Stay tuned for more, as the next step in our start-to-finish series will address construction documentation.

It’s also never too early to tell us what else you’d like us to cover in our free i3 webinars. Our 2019 webinar series topics is almost done, so please contact us at request@mcknightgroup.com to let us know what topics and questions you would like us to discuss.

2018-12-04T15:58:51+00:00 December 4th, 2018|Church Building, Church Design, Financing|

Answers to Church Funding Questions

Financing your church building project can be a challenge on many levels. In addition to learning all the finance terminology, church leaders need to consider how the realities of the construction market will impact their church funding. In a recent, free i3 webinar, we talked about the realities of financing a church building project in today’s economy. At the end of our presentation, there were some excellent questions about the material we covered. We thought those questions and our responses would be worth sharing here.

What’s the current rate of inflation, and how does that affect church building costs?

We track reports that show annual construction inflation for 2017 was between 4.25% and 4.75% and very recent data reports indicate a 2.91% cost increase through just the first two quarters in 2018. The specifics depend on your location. Here in central Ohio, the construction market remains very active and this translates to increased labor costs especially where there are not enough skilled laborers to fill available job slots. In other areas of Ohio, and of the country where construction is not booming as much, labor costs are increasing at a lower rate.

Another issue that will impact construction inflation is rising costs for materials. Last year, we talked about how costs for basic construction materials, such as gypsum and lumber, were on the rise. Recent news about tariffs on steel has already led to an increase in prices. Red iron steel went up 7% in March alone, while metal stud and sheet metal prices have risen a few percentage points each month this year. All signs say inflation is likely to continue to rise, and to affect church funding, budgeting and building costs.

Is church funding through bond sales a good idea?

During the 1980s, when interest rates were in the double digits, many churches funded building projects using church bond programs. In essence, it was a way to self-fund a church building through the sale of bonds that have a lower rate of interest than lending institutions were willing to give. Today we have the opposite problem, because lending interest rates are relatively low, so selling bonds would require offering them at higher rates of interest.

Another challenge is that a church selling bonds can confuse people. Because the typical church funding package includes donations, pledges and institutional loans, church members can be confused about why church leaders are also trying to sell them bonds. For these reasons, we discourage the idea of bond programs under current circumstances.

What tips do you have for successful fundraising campaigns?

We believe the primary key to a successful church funding campaign is always good leadership. There are two levels to this. We’ve recently shared our thoughts about the value of engaging a professional consultant for your fundraising campaign. However, that consultant isn’t being paid to do all the work. Instead, he or she will empower and train volunteers in the church community to undertake the fundraising campaign.

Within the church community itself, you also need good leadership to fulfill that campaign as it’s being directed by the consultant. A good “internal” fundraising leader is someone in your church who is organized, gets along well with people, and understands what’s happening with your church building project. With an enthusiastic leader, your church funding campaign is much more likely to find success.

Do you have more church funding questions? Reach out with your queries at request@mcknightgroup.com. We also encourage you to sign up for our free i3 webinars, where we might answer more of your church building questions.

2018-07-10T16:01:52+00:00 July 10th, 2018|Advice, Church Building, Financing|

Church Funding Lexicon: Understanding Lending Terminology

Every new adventure brings with it new experiences—and sometimes new terminology. For example, if you decide to begin rock climbing, you’ll need to learn the difference between an anchor and a carabiner, among other terms.

When it’s time to construct a new church building or renovate an existing property, you will also encounter some specific terminology—having to do with church funding and financing.

To make the process easier, we have gathered together some of the more common and useful terms you may encounter when seeking funding for construction projects. We often use these words in our free i3 webinars, so this list will hopefully also make our webinars more accessible to you as you pursue your church building vision.

Church Attendance

This is the number of people in your church or congregation. Lenders want to know if your weekly attendance is growing, the age of your attenders, and the geographical area they come from. The age of the congregation is important because, for church funding purposes, different age ranges represent different giving habits, as well as different financial responsibilities that might affect people’s giving potential.

Giving Units

The number of different groups and individuals who are giving to a church is expressed in terms of giving units. Usually a giving unit is a family—even if both parents work, the family commonly gives one gift to the church, so they are considered one giving unit.

Annual Revenue

Annual revenue is the amount of money a church brings in over one year. The number includes not just money that has been given to the church but also other sources of revenue, such as church building rentals for birthday parties, income from schools or after-school programs, etc. Lenders will want to see three to five years’ worth of annual revenue numbers to get a sense of trends and what types of income are growing or decreasing.

Appraised Value

This is the amount that the lender thinks your new or remodeled church building will be worth when the work is done. Lenders will generally loan only about 80 percent of the appraised value—and that value will likely seem low. That’s because appraisers factor in the resale value of a building, and since a church building is usually seen as a “one-use” property, they anticipate it will be harder to find buyers.

Debt Service

The amount to be paid on the loan for your church building project is called your debt service. The amount of these mortgage payments over a year should not exceed 35 percent of your annual budget (or 35 percent of your annual revenue), except in a few very extraordinary circumstances. Many lending institutions also believe a church’s annual debt service should not exceed $1,000 per giving unit per year.

Dodd-Frank Act

The Dodd-Frank act was passed by Congress in 2010. It set strict guidelines for how appraisers did their work, requiring documentation, backup support, and historic resale information on similar types of buildings to justify their valuations. This caused problems for churches, since most church buildings are sold for a relatively low value.

Congress has recently rolled back many of the Dodd-Frank restrictions (on all but about 10 of the largest banks), so more lenders may be willing to work with churches in the future. We’re waiting to see what the practical effect will be for this rollback.

New Webinars for Your New Church Funding Vocabulary

We will keep you informed about the effects of updates to Dodd-Frank as we learn them, so keep an eye out for future posts. Also, Dodd-Frank and other facets of church funding and construction are frequently discussed in our free i3 webinars—which is why we encourage you to sign up for them today. Simply visit our home page to register.

2018-06-26T16:02:16+00:00 June 26th, 2018|Church Building, Financing|

Overly Generous Funding: The How and Why to Avoid it

In an earlier post, we talked about the importance of finding a lender that understands churches to insure getting the best possible church funding. As you put together the various parts of a funding package for a church building or renovation project, it’s important to find lenders who understand the particular issues and needs of churches.

Every so often, however, church leaders can find themselves in a situation where a lender is eager to be supportive and offers overly generous funding terms which a church can’t realistically afford. That may sound like a classic “good problem to have,” but it can cause serious repercussions down the road. Here are some considerations to help keep your church financially healthy in the long term while borrowing money.

Understanding Church Funding Maximums

After more than 40 years in the church building business, we’ve learned there is a general rule of thumb for how much debt church leaders should take on during a construction or remodeling project. This guideline is typically used by lending institutions that are experienced and well-acquainted with making loans to churches.

The formula is this: The loan amount should not exceed three times the church’s annual revenue. For example, if your church brings in $300,000 a year in revenue, you should take on no more than $900,000 in debt for your church building or remodeling project.

Factors That Influence the Maximum

Bear in mind, though, that the above formula is used only in “ideal” situations. Other factors can alter that optimum situation.

These include whether the church is well-established; the type of growth the church been experiencing both in attendance and the amount of giving; and church leadership factors like the senior pastor’s length of service. If any of these aspects are less than ideal, the amount of church funding will be adjusted downward by the lender to fit the relative risk involved in lending money to the church.

Why Avoid Overly Generous Funding for Your Church Building Project?

If a church is thriving and has a great vision for its ministry in the community, occasionally a local lending institution may want to be supportive by loaning more than the established standard of three times annual revenue—say, maybe four or five times.

As attractive as that may sound, it could also adversely affect the church’s debt service for that loan. Debt service is how much a church has to pay on all its debt each month. If that number goes over 35 percent of a church’s budget, the church runs the risk of not having enough money left over to pay bills, salaries, and other costs necessary to minister to the community.

Learn More Through Our Webinars

We’ve seen a lot of church funding proposals over the years while working with churches to help them find that balance between their vision for ministry and the financing necessary for a church building that will support their vision. One way we share what we’ve learned is through our free i3 webinars. To register for one or more webinars, simply visit our home page.

2018-06-19T15:52:55+00:00 June 19th, 2018|Church Building, Financing|

Getting Professional Support for Your Church Building Projects

We, at The McKnight Group, have been immersed in the church building business for over 40 years. We’ve walked alongside church leaders as they’ve sought funding, developed innovative church designs, and successfully completed many, many renovation and building projects.

Among the professionals those church leaders often work with are church funding consultants. Read on to learn how such experts can improve your chances of success, and about other professionals you may want to consult with to ensure your new project is completed according to your specific church vision.

Why You Should Use Professionals for Your Church Building Stewardship/Capital Campaign

In our prior post, we discussed the importance of finding the right lender for your church building project when you seek traditional funding. Another aspect of the church funding process is often the stewardship campaign. A stewardship campaign lets you reach out to your church community and invite them to invest in your vision for future ministry.

Engaging professional church funding consultants for the campaign makes a big difference. In our experience, we’ve seen that professionally led capital stewardship campaigns can raise two to three times the amount of annual giving pledges over the course of a three-year church funding process. Churches that self-direct their pledge campaigns, on the other hand, typically raise up to one times the amount of their annual giving pledges.

A Further Impact of Engaging Church Funding Professionals

Using professional fundraising services has another, less obvious, benefit. Traditional lending institutions will typically look more favorably on a loan application if they know that professional consultants will be working with the church to raise funds to pay back their loan. This can lead to a more advantageous financing package than a church might receive if it were intending to raise all the funds on its own.

Where to Find Church Funding Professionals

Naturally, finding honest and effective professional consultants can be a concern for church leaders, especially since church funding isn’t necessarily their area of expertise. That’s why we’ve developed a resources list where you can find a number of reputable capital stewardship organizations.

Groups are on this list because church leaders we have worked with have had successful working relationships with them. To be clear, this does not mean that we endorse the organizations, nor do we have any official affiliation with them. Based on the successful work we’ve seen them do, however, we feel they can be helpful resources with which to discuss your church funding needs and what might be a good fit for your particular church building project.

Additional Resources Available on Our Website

Beyond our Capital Stewardship list, you’ll find lots of other useful information on our website’s Resources page, including links to church funding resources, audiovisual professionals, and church health consultants who can support and guide you through every stage of your church’s development.  

This is also where you’ll find a link to our i3 webinar page. Our free webinars on the church building process provide you with church design ideas and share other innovations you can use when considering a church remodeling or building project. Visit our webinars page today to learn more and sign up.

2018-06-12T15:57:17+00:00 June 12th, 2018|Church Building, Financing|

Doing Your Due Diligence: Preparing for Church Funding with Traditional Lenders

Unless you’ve received a truly magnificent bequest, if your church is thinking about a major church remodeling or new building project, funding has to be part of the picture. When it comes to modern church funding, know it will likely involve a mix of different options. In this post, we will take a closer look at traditional lending.

Different Sources of Financing

While some of your church project funding will come in the form of outright gifts, much of it will come in the form of pledges that will be paid over time. Still more of it will come in the form of a loan that covers the balance of the funding so that you can begin work on your church building sooner rather than later. If you wait until you have every dime in hand to begin building, and this will take years to achieve, your church will miss out on opportunities to live out its vision for ministry in the community today, not to mention having to deal with rising costs of construction over the time it takes to gather all the funds.

Finding a Knowledgeable Church Funding Lender

The most important component to maximize the chances of getting a church funding package is to find a lender that understands churches. Not all traditional lenders will.

When you are a church leader, you know well that there are many different kinds of churches. Not just different denominations, but also churches in various stages of health and at different places in their life-cycle. These variations are not so obvious to many traditional lenders. That is why before you do all the work necessary to get loan approval, you should be sure the lender you are working with understands all the nuances.

If a lending institution thinks all churches are alike, it can be problematic.  For example, if a lender has read some national statistics about how some traditional denominations are losing members, they might think that all churches are dying and want to be hard-nosed about the terms for a loan. If they don’t understand the difference between a stagnant church and one that’s active and growing, you are not going to receive the most favorable of church funding packages.

On the other hand, by finding a lender who has helped various churches successfully fund a church building project, you are much more likely to receive favorable terms and develop an encouraging, supportive relationship for the duration of your church building project.

Find the Right Lender, then Prepare the Right Documentation

Once you’ve identified a traditional lender who understands the unique aspects of lending to churches, you can move on to preparing the documentation that will be needed to secure the funding. We’ve covered some of the preparation you’ll need to do with a funding checklist here.

In our free i3 webinar series, we talk about finance and other real church building issues that are facing leaders today. Please go to our home page now to register for our upcoming webinars.

2018-06-05T14:55:32+00:00 June 5th, 2018|Church Building, Financing|