Once a capital stewardship campaign has been successfully completed, it’s usually time to secure a loan to begin your church building project. It takes more than the enthusiasm and dedication of church leaders to get a lender to underwrite a loan; planning and organization is critical. Here are some ways that lenders determine the amount a church can reasonably borrow to help plan what to expect.

The Three-Times Annual Revenue Rule

A fundamental principle used by lenders is the “three times annual revenue” rule. It serves as a helpful guideline to gauge the upper limit of what a church can afford to borrow. Approach the three times amount with caution, however. Just because a lender is willing to go this high, that doesn’t it make it a requirement, or even a good financial decision. Also, be especially wary if a lender is willing to lend an amount greater than three times annual revenues. In either case, a loan that exceeds your church’s financial capacity could lead to unsustainable payments and financial distress down the road.

Balancing Pledged Amounts and Actual Contributions

While pledges are a goal of a capital stewardship campaign, they are not a sure thing, and lenders know this. The number of pledges collected can be more relevant to the amount lenders will loan than the amount pledged for obvious reasons. More on that in a moment. There are two other factors that can help lenders generally look more favorably on pledged totals.

One is that the pledges have been secured through a professional campaign, rather than self-led efforts. Statistics show that professional expertise when conducting a capital stewardship campaign leads to substantially higher pledges and collected amounts. The other factor that will help church leaders gain credibility with a lender is a prior successful capital campaign.

The Impact of Pledge Collection

Perhaps a more concrete method lenders have for calculating pledges in the loan amount is the timing of pledge collection. The earlier church leaders collect pledges the better, because these can be included in the church’s annual revenues that is multiplied by the three times factor.

Let’s consider an example: your church has an annual income of $300,000 and gets pledges totaling another $300,000. A lender might discount those pledges by 50%, due to the uncertainty of their fulfillment. Using the three times income rule, and adding the discounted pledges, the possible loan amount would be $1,050,000. However, if you manage to collect $100,000 of the pledged amount, your annual revenue for loan calculation purposes would include it. Consequently, the potential loan amount could increase by almost $300,000.

Navigating Loan Considerations

This example shows how small adjustments in financial planning can make the difference in getting the church building or remodel you dream of constructed or not. As you embark on the church design journey, take the time to research and collaborate with professionals who can help you navigate these complexities and increase your chances of securing a loan that aligns with your financial capabilities.

Another great way is to attend our i3 webinars. These webinars provide in-depth insights into church design and building, equipping you with the tools and knowledge needed to navigate the intricate landscape of financing and construction. Sign up here!