Financing Options for Church Construction
Below is a MRR and PLR article in category Finance -> subcategory Loans.
Financing Options for Church Construction
Overview
Building a new church can either be straightforward or a significant challenge, depending on various factors. This article explores three primary ways to finance church construction and offers insights into how much a church might be eligible to borrow. It also suggests strategies for paying off debt efficiently.
Primary Financing Methods
There are three main methods for financing church construction: conventional loans, bond offerings, and capital stewardship campaigns. Each has its own benefits and drawbacks, and often, a combination of these methods is used.
Conventional Loans
A conventional loan is acquired from a direct lender or broker and is based on the future value of the new facilities, using church assets as collateral. These loans can be easily converted into mortgages after construction, often without the need for a separate closing.
Bond Offerings
Bonds involve the church working with a bond company to raise funds through a public offering. The bonds are sold to multiple investors, and as they sell, the church receives the funds.
Both conventional loans and bond offerings are influenced by the church's current income and cash flow. Typically, a church can borrow between three to four times its annual income. For example, with an annual income of $150,000, the borrowing capacity would range from $450,000 to $600,000. Cash flow and equity also play critical roles in determining this capacity.
Repaying the Debt
Securing a loan is the first step; retiring it is another. Ideally, a church should aim to pay off any debt within seven years. Long-term interest payments divert funds from church activities to external financial markets. Therefore, it's more beneficial for churches to eliminate debt rapidly.
Capital Stewardship Campaigns
Capital stewardship campaigns usually raise between 1.5 and 3 times the church's annual income over a three-year period. Many churches have successfully implemented these campaigns, raising substantial funds from their congregations.
Advantages of Capital Campaigns
1. Debt Avoidance: Some churches use funds from campaigns to save for construction, minimizing or avoiding debt.
2. Increased Borrowing Capacity: Funds from capital campaigns can augment the amount borrowed, allowing for more extensive construction projects.
3. Quick Debt Repayment: Most commonly, churches use stewardship campaigns to expedite debt repayment. Successfully paying off half the debt in three years often positions the church to clear the remainder in the next four years. As the church grows, financially and numerically, it may opt for another campaign to address further needs.
Moving Forward
A successfully executed capital stewardship campaign enables a church to plan for future expansions, reinforcing the importance of becoming debt-free promptly.
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This article is based on insights from the eBook, "Before You Build" by Stephen Anderson. Anderson is a seasoned church building consultant and contributor to Church & Worship Technology Magazine. For more detailed guidance, visit the ChurchBizOnline.com website.
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