Although some churches may not have a clear financial plan when they begin a construction project, the reality of paying for buildings becomes evident once the facility is complete.
“So often folks get a building cost but they fail to realize that they have to furnish the building,” said John MacLaren, director of office of Cooperative Program and stewardship development at the Alabama Baptist State Board of Missions (SBOM). “If they have done everything right, they are going to know how much money they need, where it is coming from and how long it is going to take to pay for it.”
To avoid unnecessary stress, church building experts advise leaders to develop sound and fiscally responsible financial plans that will not enslave their church with enormous financial burdens.
“Financial plans are good servants but terrible masters,” said Gwenn E. McCormick, author of “Planning and Building Church Facilities.” “Careful evaluation and wise financial planning can transform the financial monster in a building program into a friend and helper.”
Plan first
MacLaren added, “It is more difficult to pay for a project after you have made all of the decisions and encountered all the debt than if you planned and found out. Churches need to be on top of it ahead of time.”
Because most churches have limited financial resources, church leaders must be vigilant in focusing on the mission and purpose of the church during construction and financing, according to McCormick. “One way to do this is through comprehensive financial planning that balances building investments with missions commitment,” he noted.
The first step in this process is to compare the church’s financial capability to its growth needs. Even though church leaders should find out what financial resources can be committed to the building project, many overlook this important step, according to McCormick.
“A committee may be so intent on defining the kinds of facilities desired that they do not even think of the church’s potential to construct them,” he added.
Gary Swafford, director of church planting and building services at the SBOM, advises church leaders to plan the details of a new construction project after they have reviewed the church’s financial potential.
“There is no need for a church to spend money designing a building that is far beyond their ability to pay,” he said.
To determine their financial potential, McCormick urges churches to look at several resources:
Cash available
“Many churches anticipate needs well in advance and accumulate a building fund, savings account or reserve fund to be used for a new building,” he noted. “These funds may come from memorials, special offerings, budget surpluses or monthly deposits from budget appropriations.”
Swafford agrees stating, “Every dollar accumulated before the project starts is a dollar you don’t have to borrow or pay any interest on.”
Church budget allocations
According to McCormick, churches can safely allocate from 25 to 35 percent of undesignated income to debt retirement depending on economic conditions in the community, rate of growth in the community and church and the kind of facility being planned.
“Preparations for this kind of allocation often involve raising the level of giving in the church so additional funds become available,” he noted. “In some instances, the pattern of budgeting will have to be restructured.”
Anticipated income from a capital-funding program
Through these campaigns, the average church can expect to raise one to two times their last year’s non-designated income over a three-year period, according to the SBOM Challenge to Build program. Their research shows that it is not uncommon for churches to raise three times the amount for a new building.
McCormick considers these programs to be the greatest untapped financial resource for church building. “These programs are so successful some churches use them to pay virtually the total cost of a new building,” he said.
Estimated borrowing potential
“Most churches involved in significant building programs have to negotiate long-term loans,” said McCormick. “The critical issue is how much long-term indebtedness can a church afford to incur without being overextended.”
With 13 years in the banking industry, The Baptist Foundation of Alabama president Barry Bledsoe advises churches to prepare a bid package and present it to several banks to make sure they give you the same kind of information.
According to Bledsoe, the package should outline the length of the fixed rate period, adjustment method used to change interest rates, fees associated with the loan and the actual amortization period. As another option to funding construction projects, some churches choose to sell bonds, but many building experts advise committees to be careful when choosing this alternative.
Bond debate
“Some people have a misconception about bonds that if we sell bonds we have our (own) money,” said Swafford. “Many people do not realize the selling of bonds is getting (borrowing) money (and) the money you get from selling a bond has to be repaid with interest.”
Bledsoe added that selling bonds is generally a little more complicated and costly to many churches.
No matter what method is used to finance a building project, it is extremely important to do adequate budget planning for the project, according to McCormick. “The more extensive the planning, the more likely the possibility of developing a realistic budget,” he said.
MacLaren also advises churches to keep the congregation aware of the financial plan. “Keep it before the people so they will know exactly where they are and what is expected of them,” he said. “Keep the congregation well informed throughout the entire campaign.”
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