Photo of various stacks and rows of coins with FUNDING concept word imprinted on metal surface

There are always limits on what mortgage lenders are willing to lend. That’s natural and reasonable, and it’s important to understand how those limits are determined. In our last post, we stated that lenders aren’t going to fund more than three times your annual revenue (or at least shouldn’t). That’s the maximum, but it’s not a guaranteed amount. Many churches actually receive less because every church carries a different level of risk.

Here are some of the risk factors lenders consider, and the questions they ask, in order to figure out how much funding they’re willing to loan for your church design and construction. And how much debt you, as church leaders, should be willing to accept on behalf of your church.

Questions about Your Church’s Growth

One category of questions that lenders ask is about your church’s growth in recent years. Is the church experiencing an appreciable pattern of numerical growth and attendance? Lenders want to know if you’re a growing church. Also, they will want to know the following: How long has the present senior pastor been at the church and what has been the pattern of growth for the church during his or her tenor? They want to see that the leadership in your church is solid and that things are going well.

Questions about Your Church’s Financial Growth

Here’s another important question lenders ask: Has the church experienced multiple successful years of financial growth? They want to see that the new people who are showing up for worship and other activities in your church building are also contributing to the financial growth of your organization.

Then there’s growth in what are called in the financial and lending world “giving units.” A giving unit is a group of people that participate together. Usually, this means a family. So, for example, if both parents have jobs and contribute to the church, that’s one giving unit. A teen living in the house might make their own pledge to the church. All of those together are considered one giving unit, and lenders want to see that the church has at least 100 giving units, and that the number of giving units is also increasing over time.

Understanding Reasonable Limits on Financing Your Church Building

Another important risk consideration for lenders is “debt service.” What other obligations is the church paying back currently? The banker doesn’t want the church’s annual debt service payments, including a new loan, to exceed 35% of the total annual revenues of the church. This limit, or “cap,” makes good business sense. If you spend too much on debt for your church building project, you won’t have enough money left for fixed expenses, like paying your pastor and other staff, or supporting the various ministries that support your church vision, which is probably the reason for your growth in the first place.

We hope this all makes sense, but if you’re not sure, stay tuned, because our next post will include a sample calculation to help illustrate these concepts. Meanwhile, sign up for our next free i3 webinars, because these webinars are the way we explain such church building concepts as debt service and financing.