If your church is considering pursuing a church loan, now is the right time to start preparing your documentation. Even if you decide not to move forward with the loan, the process of gathering, reviewing, and preparing your information can be clarifying. While different lenders will approach things differently, here is a list of documentation and information to have available when you sit down with a potential lender.
1. Your current weekly attendance:
How many people are showing up to church for every service? If you can demonstrate growth here, that’s even better. Along with this information, think about other facts that will give an outsider a clearer vision of what is going on at your church. This could include things like:
- Membership: There is a difference between someone who simply attends a church and someone who is committed to a specific church’s mission. Membership information helps demonstrate the number of people who are all in on the ministry. Having a couple years’ worth of member information is preferred.
- Baptisms: This helps give lenders a different view of your growth. Are you reaching new people and adding new believers to your congregation?
2. A business plan:
Your plan could include the following:
- A description of your ministry: State who you are and what you intend to accomplish. This is a good place to include your vision and mission statement. You want the lender to understand both who you are and where you are going.
- How you intend to grow: Say you plan to expand your sanctuary or purchase that old Best Buy building; then what? What strategies are you working on to connect with more people in your community? Do you have a demographic in mind? How will you reach them?
- How you will use the building: Obviously, lenders are mostly concerned with whether or not you will be able to service your debt, so it’s particularly helpful to demonstrate ways that the property will generate income. That includes showing how you intend to grow your church, but it can also mean demonstrating how you will use the building to create new revenue. Maybe you will use some of the space to start a daycare or preschool. Perhaps you plan to open up your building for community use during the week. Or maybe you intend to offer cheap office space for remote workers on weekdays. If you have ideas for creating extra income with the building, make sure to communicate those.
- Staffing plans: As your church grows, you will probably add some staff. What positions would you hire to fill and—more importantly—how will they help you grow?
3. Your property value:
Do you own the building you are in right now? How about the land? How much do you still owe? How much equity do you have in them? Does your church own any other assets? Maybe you own a local thrift shop or own a building that is being used for a soup kitchen. Present a portfolio with all the church’s assets.
4. Your debts:
Prepare a complete accounting for all your debts and the rates attached to them.
5. Your income:
What does your income from tithes and offerings look like? Can you demonstrate stability there? How about growth?
This information will help you get the ball rolling, and discussing it with a potential lender will give you insight into whether you want to work with them or not. Your lender should not just be looking for a spreadsheet with numbers on it. A good lender will want to really understand your church and its unique needs.
As the process develops, they will ask for other documentation. That will likely include things like:
1. CPA-prepared financial reports:
Your lender will want to see your information going back about three years. Many lenders require that an independent accountant prepares these financial statements, and if you do not have them, it can set the process back a number of months. If you are a church with an established history and you are even thinking about the possibility of a loan, it is probably a good idea to invest in some CPA-prepared reports now. Get it out of the way before you start, and when they are needed, you’ll be ready to go. If you are a newer church and you do not have three years’ worth of history, you will need to talk to your lender about the requirements.
2. A current market appraisal of your property:
Both a seller and a buyer will have opinions about a property’s value, and both opinions are necessarily a little biased. A current market appraisal is an attempt to get an objective view of a property’s value based on today’s market.
3. Church constitution and bylaws:
One of the tricky things about church lending is that the governance of various churches can be so different. Lenders need to understand how decisions are being made in a church. If a resolution is passed to take out a loan, how was it agreed upon? Which individuals in the church are ultimately responsible for making and facilitating financial decisions?
4. A title search:
At its most basic level, a title represents the rights on a piece of property. A title search is an act of checking the public record to determine what those rights are and who owns them. This will clearly identify the history of ownership (chain of title), the status of any taxes against the property (tax search), and ensure there are no unsatisfied judgments, liens, or encumbrances against the property. If you currently own a church property that you are expanding or selling to afford a new building, you will probably need to provide a title search.
Putting everything in order.
Even if you are merely entertaining the idea of a loan, it is a smart move to get all of your records together. Look into having an accountant go over all your financial documents to make sure everything is in tip-top shape.
Plan on going in to meetings with your potential lender with a clear idea of your needs, plans, and goals. Think through everything in the list above ahead of time. The better prepared you are, the more confident lenders will feel.
Most importantly, choose your lender carefully. It can mean the difference between being just another business transaction or actually dealing with someone who cares about your ministry.
CDF Capital has been focused on church loans since 1953, and we are committed to helping churches overcome the challenges of financial growth projects. We believe in the church—sometimes when no other lender will. If you are interested in learning about how CDF Capital can help you, please email us today at contactcenter@cdfcapital.org or call us at 888-540-7112.
