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.