Churches need good stewardship when taking on debt

Last year, 30 percent of the 3,249 Alabama Baptist churches reported nearly $500 million in debt, according to the Annual Church Profile. Yet some congregations may  wonder if borrowing money is a financial blessing or impending curse for churches in need of additional funds.

Despite some negative views of church debt, experts believe it could be helpful in accommodating growth and financing building projects when debt is necessary and the church uses good financial principles.

“The foundation of a church [being] able to do ministry is that they have to have the financial foundation in good shape, too,” said Karl Dietz, senior director of the North American Mission Board (NAMB) church finance ministry team. “It gets back to the basis of stewardship. A part of that stewardship is understanding your income, expenses and liabilities, which include indebtedness.”

The key to good stewardship with church finances is proper planning, according to John MacLaren, director of the office of Cooperative Program and stewardship development for the Alabama Baptist State Board of Missions (SBOM).

“A church needs to study a recent history of the … giving record of their church over the past several years,” he said. “This is generally five to 10 years unless it is a new church. (They should) have the sufficient funds to start (a project), know the total cost and have established the ability to pay toward the total needs.”

According to the SBOM, building projects cause the most significant amount of church debt.

But before undertaking any amount of debt, MacLaren and Dietz encourage churches to follow these general rules of thumb:

• Do not assume a debt that exceeds two to 2.5 times the past year’s undesignated offering.
• Follow the fixed expense ratio. “We have generally found that a church can allocate up to 85 percent of its tithes and offerings income for fixed expenses, which includes salaries, benefits, utilities, leases and debt,” Dietz said. “If that is the case, that only leaves 15 percent of income for ministry and missions giving. If they exceed that level, they could get into financial bondage.”
• Plan properly before beginning building projects. “When the proper planning is done, a church will generally not overbuild or underbuild. Neither will they build the kind of building that they really do not need,” MacLaren said.
• Do not acquire a building payment that is more than 25 or 30 percent of the church’s budget.
• Consider placement of future buildings before beginning construction.
• Consider what furnishing a new building will cost during the planning stages. MacLaren said many churches build thinking only about building costs, overlooking the fact that the building needs to be furnished properly to be effective. Another oversight is the cost to maintain the building and equipment, insure the building and pay utilities and staff.
• Postpone building until the church can afford it. “We often [say] we have to have faith,” MacLaren said. “This is true. … [W]e must have faith but we must also be reasonable and responsible.”

Although these principles may apply to many churches, Dietz advises congregations to remember that debt is relative to each individual church.

“From [the NAMB church finance ministry’s] perspective, a church should carry a level of indebtedness that will not impair its ability to grow and provide ministry in its community,” he said. “That number is going to be different for every church because it’s going to be based upon their overall fixed expenses.”

Dietz and MacLaren also believe church leaders should recognize the signs of a financial strain and realize its effects on the church. “A large debt … can often affect the fellowship of the people,” MacLaren said. “It can also limit some ministries that are important to the local church. … Then there is often a temptation for people in a church to start thinking and encouraging the church to reduce their missions and Cooperative Program giving with the idea that (they) can pay for (their) building and then (begin giving) in the future.”

For information on church debt, call 1-800-634-2462 or visit www.churchfinanceministry.com. To prepare for a building project, contact the SBOM at 1-800-264-1225, Ext. 241.