Church Building – 4 Steps To Keep You From Over Spending

Church Building Budgets

If you’re googling you way through cyber-space trying to find information on how to build a church building you’re going to find a ton of information.  Some of it good, some of it not so much.   Before you spend a dime however, the best advice I would offer is to make sure you have a healthy understanding of what you can afford.  Here are 4 ways things to do before you start hiring your church building professionals.

Church Building Budgets

1.  The first thing you have to do is make sure you’re church is keeping good financial records.  Just like with a family budget you need to account for ever penny received and spent.  If you’re the pastor it isn’t your job to be collecting this information, but setting goals for giving, spending, and measuring your progress has to be a high priority for you!

2.  Next you’ll need to begin to make a “wish list” of future purchases that are major expenses for the church.  That could be everything from a new roof to an additional staff member.  Even though they are one time expenses they are going to affect your balance sheet and / or your margin.  The impact of one time purchases could cost you a significant amount of borrowing potential which means less, much needed, ministry space.  During this process, the toughest decisions you’ll have to make will be related to delaying much needed ministry staff hires.

3,  Third you’ll need to understand the numbers.  I’d highly recommend you taking an hour to understand how to use a financial calculator.  My first career out of college I worked in financial services with a major brokerage firm.  The job was stressful to say the least, but I did learn tons about money, and how it works.  Knowing how to do an amortization calculation can save you some serious financial hardship.  You can rely on other people for these calculations, but it pays to be able to double check for yourself.  I’ve found, being able to quickly calculate the difference in the changing variables of interest rate, length of term, and loan amount helps make better decisions. There’s an HP12c App that costs about $5 and tons of 5 minute videos on Youtube.com to help you understand the basic use of it for amortization calculations.  The time spent comes back to you in $$$.

4.  Finally you’ll need to have baseline understanding of how a capital campaign will affect your affordability.  This is really important because, unless your bank does a lot of church loans, they won’t understand the relationship between what you need to borrow and your campaign.

For illustration let’s assume a church can afford the debt service (to make payments) on a $2,000,000 loan.  At 5% interest (which would be high at the time of this writing) over a 20 year loan their payment would be roughly $13,200 per month.   They also have a building fund of $300,000.

When a church does a capital campaign the people in the church are committing to a certain amount of extra giving over a period of time.  Usually 2-3 years.  With most campaigns 25-30% of the pledges come in fairly quickly.  So if you have a campaign where $1,500,000 gets pledge you’ll probably receive $500,000 within 6 months of the initial pledge day.  That means you have and outstanding commitment balance of $1,000,000.  (Sorry for the over simplification)

A high level estimation of what your church can afford to build would be calculated this way.

Serviceable debt amount ($2,000,000)  +

Cash On Hand ($300,000) +

The Capital Campaign commitment ($1,500,000) =

The church’s affordability would be somewhere in the $3,500,000 to $3,800,000 range give or take a bit.  (many times banks discount the commitment by 15 to 25% but I haven’t made that calculation for simplicity sake)
Because there is somewhere in the neighborhood of $1,000,000 of pledges that have yet to come in.  You’ll require a bridge loan that will be paid down to what you can afford over the next couple of years of the campaign as the pledges come in.  So you are asking the bank to provide you with a loan that you can’t afford to service based on the current margin in your operating income.  Banks that don’t do a lot of church loans are going to struggle with this so be prepared to work with them to help them understand how churches raise money for a church building.

Click Here for a post on how to construct a church building budget for the entire project..

These days banks are nervous and foreclosing on churches is really bad business.  Understanding your affordability will make you a safe risk and allow you to have a healthier church  post construction.

Finally here’s some information on the average cost per square foot to build a church.