When it comes to project development it is never too soon to start talking to the bank. Yet I find that often one of the last things a church does as they begin their building project is check with a lending institution to see if they can borrow what the cost of the building will be. That is a dangerous mistake.
“I don’t think we will have a problem borrowing $10 million dollars for our project,” said the pastor of a church with a $1 million dollar budget! After talking to ten banks they found out $4 million was what they could borrow. The sad thing about this is the pastor had already shown the congregation the preliminary plans for $10 million. Now we have to reset their expectations.
“How can we go to a bank when we don’t have the final plans,” is what I am often asked when I ask what banks are telling them. The answer is you have a good ball park idea of what the cost will be. In the above true illustration the minute they started talking to banks the church knew they had to scale the plans back. The second you have an estimate you have enough to begin talking to banks about what their lending criteria is for churches of your size.
Even if you are just “thinking” about a potential project it is wise to talk to at least your local bank to see what their loan policies for church projects is. That way you can plan intelligently.
Here are some final thoughts that we are finding when it comes to acquiring loans.
- It will take you longer to acquire a loan than in the past.
- The bank you have your account with might not be the best bank to acquire your loan with.
- You should talk to more than one bank to compare rates and requirements.
- You will have to prove you are a good risk for any loan amount. Banks are looking for stability.
- Cash is king! The more money you have in reserve the more attractive you will be to any lender. Start your capital campaign earlier to amass cash!
- Pay down any existing debt. Banks will look at your current debt and count that against you in terms of how much they will loan on another project.
- Have debt repayment structured into your operating budget. Even if you are in a capital campaign banks are impressed if you also have a line item in the budget to attack your debt.
- Have good documentation! Show banks why you are a good risk. We can help you with this putting together documentation that shows your growth and value.
- Start NOW talking to banks!
The bottom line is, It is Never Too Soon to Start Talking to the Bank!
Mark Brooks – The Stewardship Coach