How Churches Can Improve Their Ability to Secure a Loan

For a lot of churches, the process of getting a loan can be a bit overwhelming. There are so many questions. What are the first steps? What information is going to be required? Where are the best places to go for a loan? We answer a lot of these in our post How to Shop for a Church Loan.

If you are considering a future that might require taking out a loan, you might want to start getting things in order now. The more prepared you are, the smoother the process will go.

Here are some suggestions for improving your chances at securing that loan.

1. Put Together a Business Plan

The idea that you would put together a business plan might seem weird. After all, you are a church, not a business. Yet a business plan will help you and your board come together on a strategy that you can clearly communicate to a potential lender.

This plan should include a strategy for your facilities. This is likely your largest expense, and it is helpful to see it as more than a place to gather on Sunday mornings. Is it your intention to purchase or lease an older building or do you plan on new construction? How would a new building help spur growth? What other ways could you see your church using the building throughout the week?

  • Weddings
  • Food bank
  • Childcare
  • Meeting space for local conferences and gatherings

You also want to consider your plans for staffing as you grow. At what points in your growth trajectory would you add new team members? What positions would you add? How would those positions generate more growth?

A business plan demonstrates forethought and intent. It tells potential lenders that you are not just playing it by ea, and that you are able to demonstrate how a loan fits into your long-term goals.

2. Get Everything Organized

The #1 consideration for any lender is: will this church be able to pay back this loan? Potential lenders are going to need to see financial records and understand your church’s cash flow. Even if you have a great financial track record, lending has risks. One of the best ways to make lenders comfortable assuming that risk is to have everything arranged and in order.

Before you ever speak to a lender, make sure you have everything in order. You want to put together records of your donor history, budgets from the last few years, minutes from board meetings, payroll history, etc. Your lender may never need to see everything, but you do not want to give the impression that you would have to go scrounging around for something they request.

Think of looking for a loan as a good opportunity to do some spring cleaning and get your records in ship shape.

3. Demonstrate Cash Flow

As you organize your records, keep in mind that a lender is going to want to know if you are going to be able to pay back a loan. They are going to want to see your debts, payroll costs, and ministry expenses. This is how they are going to determine your debt service coverage ratio (DSCR).

You will also need to see what you have available in cash reserves. If there is a dip in giving or any unforeseen problems, a lender is going to need to know you will still be able to cover repayment.

You will want to be fastidious with this information. Make sure all your records are up to date and available. It will make the whole process run smoothly.

Putting your records in order

Because many churches do not like to think of themselves as a business, a lot of the financial details are simply a means to an end. This really becomes a problem when it comes to record retention. Financial information gets spread out across multiple locations: physical files, hard drives, and various computers.

One of the most important elements of preparing for a loan is simply pulling together, identifying, and labeling all of your records so it is easier to hand off to potential lenders.

For more information about church lending, check out our post: 4 Questions to Ask When You Are Considering a Church Loan.