Financing for Church Construction
Churches grow for different reasons—clear vision, focused mission, strong leadership, prayer, biblical teaching, caring people, commitment to community, a heart for service. Look beyond this list, though, and you will usually find a common denominator. Growing churches are healthy churches. They are intentional about glorifying Christ as they follow him together.
When healthy churches grow, discussions about inadequate facilities often begin, which gets people talking about expansion. This is when churches confront the challenge of balancing big dreams with hard realities. Depending on how a church responds to this challenge, the process of planning and building can either make a church healthier or hurt its ministry.
When you construct a new church facility or expand an existing one, careful planning is essential for both the success of that building effort and the continued health and growth of your church. Good planning requires accurate information. You need to:
- Evaluate the project’s alignment with your church’s vision, mission, and values
- Gain a clear understanding of your church’s strategy for pursuing its mission
- Put your church’s administrative matters in order, particularly its operations and financial reporting
- Understand your church’s cash needs to support the ministry up to, during, and after construction
Think About Long-Term Health First
Make sure your project will support not only immediate ministry needs but future ones as well. Prepare a master plan that allows for growth and expansion later on. Identify all areas of risk for the project—its potential “hot spots”—and devise a contingency plan for each.
Assembling a complete and diverse team is fundamental to a successful project. Choose only partners that resonate with “who” your church is—its vision, mission, and values. Start early. Involve the church board, capital-campaign team, building committee, architects, builders, consultants, and lenders in the early planning stages, and keep them well informed. Draw on their expertise and experience, and make sure you require clear, regular communication from your team to avoid any surprises.
Be particular when hiring your project manager or general contractor. Having the right one onboard helps ensure a great new facility, whereas making the wrong choice can devastate your ministry. Take your time. Review resumes, visit offices, and call on each candidate’s previous clients to check references. Evaluate each company’s financial stability for the previous two years. Operating at a profit is a good indication they know how to appropriately bid jobs, both in project management and materials costing.
Get Off to a Healthy Start
Spiritually, financially, and physically, few things are more difficult in ministry than spearheading your church’s building project without congregational support. Inform members of the plans early and often. If professional subcontractors happen to be part of your congregation and want to perform the work, ask them to sign a formal contract to avoid confusion later. You want to encourage those who are willing to give their prayer support, time, and money, but you also want to use these resources wisely.
Gain a Healthy Perspective on Money
Construction projects cost money. Once a budget has been set for your building project, two factors will typically dictate the scope of it—the amount of money you are able to raise through a capital campaign and the financing you are able to secure to bridge the gap between raised capital and project costs.
Four types of financing sources should be evaluated: bond financing, conventional financing, denominational financing, and credit union financing.
Bond financing funds loans by offering bonds to investors. This is a long-term, fixed-rate financing option, usually spread over a 20-year period. Up-front fees are typically higher than with more conventional funding sources.
Some companies issue bonds on a best-efforts basis; sale of the bonds is not guaranteed, nor is funding. Note that prepayment charges usually apply within the first few years if a church raises enough money to pay off bond financing early.
Conventional sources, such as banks and savings banks, are a more common alternative for financing a church construction project. Banks offer different rate and term options. A variable-rate option is usually approved for the construction loan, and that loan is then paid off at completion of construction. A balloon payment might apply at completion of construction.
Sometimes, denominational financing is available. The source of funding for these loans is pooled resources from investments by member churches. The advantage of this type of funding is that denominational lenders typically understand churches. They fully resonate with churches, their visions, and missions; however, denominational funding can be limited to the amount of money available within the fund and may have restrictions on those to whom it can lend.
Certain credit unions can also be excellent sources of financing for church construction loans. As member-owned financial cooperatives, they intimately understand their members, which means a credit union that lends to churches understands ministry. And some credit unions can serve a broad spectrum of church denominations.
Since credit unions are traditionally consumer oriented, very few offer commercial lending. Find one that does commercial lending well and you get the best of both worlds—a funding source that shares your passion for kingdom impact.
When a healthy church goes through an expansion project in a healthy way, the result is often continued growth. Good planning contributes much to the process. Perhaps its greatest contribution, though, is that it keeps your focus fixed on the things that helped you become a healthy church in the first place.