From saving to borrowing to fund-raising campaigns, Alabama Baptists have several finance options when planning to expand or renovate church facilities. But before moving forward with any building project, church committees should concentrate on creating sound and fiscally responsible financial plans that will not enslave their church with enormous financial burdens, according to building experts.
“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.”
Since 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 mission 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 new work and church building services at the Alabama Baptist State Board of Missions (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.
In “Planning and Building Church Facilities,” McCormick urges churches to look at several resources in determining their financial potential:
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. Whatever their source, these funds can make a tremendous difference when the time arrives for building.”
Swafford agrees stating, “Every dollar accumulated before the project starts is a dollar that 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 during a three-year period, according to the SBOM Challenge to Build program. Their research shows 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,” McCormick said. “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, Barry Bledsoe, president of The Baptist Foundation of Alabama, advises churches to prepare a simple 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.
“Some people have a misconception about bonds that if we sell bonds we have our (own) money,” Swafford said. “Many people do not realize that the selling of bonds is getting (borrowing) money (and) the money that 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 finances a building project, it is extremely important to take the time 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.
How to prepare a financial plan
- Review past and present financial performance.
- Make initial contact with your denominational office for sources of fund-raising help.
- Project the amount of money to be raised in an intensive capital-fund campaign.
- Investigate sources for borrowing funds and potential amounts available.
- Secure tentative loan commitment from selected loan mortgagee.
- Determine the maximum funds available for the building program.
Source: “Planning and Building Church Facilities” by Gwenn E. McCormick
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