Some church leaders may worry that it’s too expensive to borrow money for church design and building projects because interest rates are high. We covered the cost of delaying a church building project in a previous blog post, and the reality is that the extremely low rates of recent years may not come back.
Here is a closer look at interest rates, and how you can maximize your potential to secure funding by knowing what to expect from lenders, so that you can prepare accordingly.
Understand Inflation and Interest Rates
When we are experiencing high inflation, or a rise in prices for goods and services, the Federal Reserve steps in. The Fed tries to raise interest rates to combat rising prices and manage inflation within a healthy range for the economy. In the chart below, you’ll see that this is what occurred in 1972, 1980, and 2008. When inflation went up, the interest rates followed. The mistake made in 1972 was cutting the rate too soon, which caused another peak in inflation.
You’ll also see that we’ve had the lowest interest rates, besides those during World War II, since the mid-1990s. Those low rates became the norm, except there’s really nothing normal about what we’ve experienced over the last ten years, and it’s probably coming to an end. Although inflation is cooling and rates will likely come back down, they are unlikely to be that low again.
Find the Right Banker
Not all lenders are the same. Some look at all churches in the same light, unable to differentiate between different churches other commercial borrowers and even other religions. Church leaders benefit from finding a banker who understands how churches operate. That banker will be interested in what your church is doing and will also be able to see how your church differs from other borrowers. A lender who understands the significance of leadership and vision in your church will have a greater understanding of your lending needs.
Once you’ve found the right lender, what’s the next step to secure financing? Church leaders must be prepared to answer some key questions.
- Is the church experiencing growth in attendance? If you are, all the better. If not, have a good explanation. For example, it might be that your church is in a town with a lot of transference. Your annual growth and loss may offset each other because so many people are just passing through.
- Has the church had multiple years of financial growth? Have the numbers to back it up, including the current income and expenses of the church, as well as financial reports and reviews from previous years.
- Has the senior pastor established a history with the church? Be ready to provide details on the length of their tenure and the church’s pattern of growth during that time.
- Has the church experienced a steady or growing number of giving units? Lenders will look at giving units, not individuals. It’s important to understand that a family is counted as one giving unit, even if a husband and wife both have incomes and are both tithing. In most cases, a church will need to have at least 100 giving units before it can get a significant loan.
- How much debt does the church pay every year? A church’s annual debt service payments should not exceed 35% of its annual revenue. A church’s annual debt service should not exceed 35% of the annual budget.
If you’re interested in more information about church building and financing your church design project, don’t miss out on our free i3 webinars. Register today and have your questions answered by experts during these live, interactive webinars.