Evaluating funding options necessary for success : Friday, April 2, 2004
April 1 2004 by Jane Page

Evaluating funding options necessary for success : Friday, April 2, 2004
Friday, April 2, 2004

Evaluating funding options necessary for success

By Jane Page
Special to the Recorder

Everyone is excited about the thought of a new church. A large sanctuary with plenty of seating, a Sunday School building with three floors and a fellowship hall large enough for Wednesday night dinners are being envisioned. It all sounds wonderful, but two unanswered questions are looming: "How much will it cost?" "How will we pay for it?"

Early in the process, church leaders need to carefully analyze a church's financial resources, say church building consultants. No matter how great the needs and how glowing the visions, a church eventually will have to deal with the issue of financial resources.

"One of the keys to a successful building program is focusing on the financial concerns at the proper time," said Jerry Grubbs, church architectural consultant with LifeWay Church Resources in Nashville, Tenn. "Ideally, this should be done as soon as needs have been defined and goals are being established. Financial realities become a part of the overall plan."

In determining financial potential, a church has to look carefully at several resources: available cash, church budget allocations, anticipated income from a capital-funding program and estimated borrowing potential.

Many churches have been able to accumulate a building fund, savings account or reserve funds to be used for a new building. These funds may come from memorials, special offerings, budget surpluses or monthly deposits from budget appropriations. These funds can make a big difference when the times arrives for building.

"For years, many churches have followed the old adage that churches should not save money," said Grubbs. "This is wrong. Churches should make a habit of putting aside funds, and then they do not have to start at ground zero when deciding to build. They need to have a line item in the budget and regularly put money in there."

Saving money on a regular basis can save a church three or four years in the fundraising process, he said.

Churches also need to determine how much can be allocated for the building project from the budget. Churches can allocate about 25 percent of undesignated income to debt retirement, according to Grubbs. The exact percentage depends on a variety of factors such as economic conditions, growth in the community and church, and the facility being planned.

That percentage can easily be misunderstood, according to Gwenn McCormick in his book Planning and Building Church Facilities. That rule does not mean a church can suddenly assign 25 percent of its budget to debt retirement and not miss those funds.

"The rule of thumb simply indicates, even with proper preparations, a church can safely allocate no more than 25 to 35 percent of its undesignated income to long-term debt payments," he stated. This may involve changing the pattern of budgeting or raising the level of giving in the church so additional funds become available.

Churches also need to consider a capital campaign. This program, often led by a consultant, can raise significant funds, according to Dan Euliss, team leader of stewardship education and offering promotion for the Baptist State Convention of North Carolina.

"Churches can expect to receive one-to-two times last year's receipts over a three-year commitment period," Euliss said. "Realistic goals need to be set when churches undertake a capital funding campaign."

Most churches involved in a building program have to negotiate long-term loans. The critical issue is how much long-term debt a church can afford without being overextended.

"Churches need to come to us before they get too deep into the planning process," said Hope Connell, executive vice president, business banking segment with First Citizens Bank.

According to McCormick's book, churches can calculate the safe borrowing potential based on the value of the property and buildings, budget funds available for amortizing a loan, or a multiple of the church budget.

Most churches go to a bank or other lending institution when the fundraising pledges have been received. If a church has not raised at least 50 percent of the cost in pledges, the building project lacks enough support from church members, Connell said.

Most churches get 15 to 20-year bank loans, she said. Many churches pay back the money much quicker as the pledges start to come in over a typical three-year period.

Connell said First Citizens works with churches of all sizes. "It is really important for a church to carefully select a bank or lending institution," she said. "The one that offers the lowest prices may not be the best one to go with. Developing a relationship and dealing with people who are knowledgeable about churches and church building projects is very important."

Church bonds are another financing option. A church bond is a security instrument subject to state and federal security laws, according to McCormick. Churches will need the services of an attorney or other professional guidance to enable them to conduct a sales program that meets security regulations. Church leaders need to be aware of the total cost of bond issues, which includes interest paid to bond holders, sales and accounting costs.

4/1/2004 11:00:00 PM by Jane Page | with 0 comments

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