"Ten Questions Your Banker Will Ask"

By Jack Dennison

O: 719-528-5709

Email:JackD@Churchfs.com

eHarmony.com and Church Lending; What do they have in common?

Each service is about matching the personality, characteristics and interest of two parties that don’t know one another. Each is involved in the art of relationship match making.

eHarmony.com and church lending each assumes that there is someone out there that is just right for me. If I can only find that special someone it will really make a difference in life. Each begins with a match maker sorting through the volume of information provided through forms and interviews looking for a compatibility match based upon similar and complimentary characteristics.

All of this begins with a thorough online or paper instrument that is used to get at the heart of essential issues. Here is a listing of the essential issues lenders are interested in when assessing their compatibility with potential borrowers seeking a church loan.

Question #1: Do you have financial statements that are in proper order??

The single most important information bankers are interested in are the Income & Expense Statement and Balance Sheets for each of the last three full years. It is a good idea to have a CPA compile these reports to insure they are formatted properly or at least look over the church’s current statements for possible recommendations. If these statements do not properly conform to Generally Accepted Accounting Practices or if their are errors in the way income, expenses, assets or liabilities are reported the experience will turn into one akin to an IRS audit. This can be avoided by a proper review before submission to a lender.

Question #2: Do you have net income?

The key to successful living is not how much money you earn each year but how much of it is left over at the end of the year. If churches spend what they receive and having nothing left over at the ends of the year it will be difficult to absorb an additional mortgage payment. So, a word to the wise is to increase revenue and decrease expenses. This is easier said than done but it is essential if your church hopes to borrow money to buy or build.

Question #3: Do you have enough adjusted net income?

The rest of the story regarding net income is not only what is left over at year’s end but also the add-backs that will comprise the net adjusted income. So, expenses for mortgage interest, costs related to the church’s Capital campaign, expenses related to the development project, and other one-time costs are added to the bottom line to reach a grand total of all revenue that could be available next year to service debt. This is ultimately the key factor in determining whether your church can afford the church loan you seek.

Question #4: Do you have an historical overview of the church describing your church and current attendance trends?

This is the typical biographical information you would ask of any person or company. When were you born and where? Where have you lived and for how long? What is unique about you and your history related to ministry and community impact. Attendance records show whether the church is growing, plateaued or declining.

Question #5: Do you have a description of the scope of your current buy/build project?

What do you intend to do with the money for the loan? Be as specific regarding this description and the costs related to it. If you are still unclear about these details the church should wait to submit their loan request until these details can clearly be presented.

Question #6: Do you have a description of your senior pastor; his tenure, previous experience, education, etc., and that of the broader leadership team

Most lenders have figured out that it is all about leadership. A good leadership team has the capacity to infuse vision into the congregation and garner member support financially and otherwise to successfully complete the project. The more competent and experienced is your leadership team the better marks the church will get from potential lenders. Strong leadership sets lenders at ease.

Question #7: Do you have a history of past and/or present use of Capital Campaigns?

Lenders have discovered the value of the Capital Campaign in a successful purchase or development project. They expect that you are involved in one as you prepare to buy or build. Who helped you get ready for the Capital Campaign? What were/are the three year goals and what was/has been collected? Many growing churches are in continuous campaigns either for growth, debt reduction, or the next phase of growth.

Question #8: Do you own other fixed assets?

Securing a church loan where other fixed assets are already owned makes the entire process much easier. Like with first time home buyers a congregation’s first church building is the toughest to secure. What assets are owned? When were they purchased? What is the expected appraised value of each and what is currently owed on each asset? If you have existing equity the getting a church loan is made much simpler.

Question #9: Do you have a Debt to Income within guidelines?

Lenders will generally not allow annual mortgage payments to exceed 30% of the church’s income. The standard rule of thumb states that any moiré than this will require the church to sacrifice its ministry capacity in order to pay for an unusually large mortgage. Lenders don’t want a church to place themselves into this limiting situation.

Question #10: Do you have enough cash flow to service this debt?

If the church’s annual mortgage payments amount to $300,000 the church must demonstrate to a potential lender that they have more than $300,000 in their current and next years budget to service this debt. Since lenders do not loan against pro forma, that is future expectations, but instead fund off past performance it is important that the church demonstrate a historical capacity to absorb the new debt rather than merely a future hope that they can.