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Church Construction 101: Getting Started

Church Finance Basics
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Many churches approach their building program in a step-by-step manner as if they were making macaroni and cheese from a box. However, most building programs are more like a gourmet meal. Many things need to happen simultaneously in order to achieve the desired result. So rather than thinking in terms of who to call first – the architect, lender or builder – call all of them. Getting input from each source will allow you to see the project from multiple perspectives. You can then use this input to create the right “recipe” for your goals and price point.

"Who do you call first? The lender, architect, or builder?" This is the most common question we hear as we work with churches across the country. It can be difficult to know where to start. To get the loan, the lender wants to know how much the project will cost and what it will look like. The design is necessary in order to get contractors to price the project, but it costs money to hire an architect and design a building. And should you pay an architect without a loan? Beginning a new building project can be enough to make your head spin. Here are some things to keep in mind as you begin.

First Steps

Evaluate the need. Before contacting the parties that will be involved in your project, take time to reflect on the purpose of your project. What are the core needs of your ministry? Where are your largest growth areas? Be sure to build your project on the foundation of the goals and vision of your ministry. Ministry need should always drive the project. Taking the time to consider these items prior to beginning your project will help ensure that your new facilities meet your current and future needs.

Consider your resources. Consider where you are financially. In other words, what can you afford? This can be determined by evaluating your cash position, fundraising or stewardship potential, and borrowing capacity. Your cash position is the money you’ve set aside for the project. Make a clear distinction between this money and your cash-on-hand for operating and/or emergencies. Do not deplete your operating cash in order to build as this could cripple your ministry. Your stewardship opportunity is the amount you could potentially raise from your congregation and ministry partners to help fund the project. Finally, your borrowing capacity is your debt capacity in light of your ministries, missions giving, salaries, etc. Keep in mind that what you can borrow and what you should borrow are not always the same. Think of this amount as your borrowing boundary – not as the final amount you should borrow. These items combined will give you a benchmark for the possible scale of your project.

Talking to a Lender

When looking for a lender, find one that you trust. It is also important to have a lender who understands church finances, budgets, and ministry at large. Your initial call with a lender will help you get a feel for what their underwriting standards are as well as what documentation you’ll need to provide to determine loan qualification. For an initial loan qualification, most lenders will ask for:

  • Financials - Three years of financial statements presented in generally accepted accounting practice (often referred to as GAAP) and a current year-to-date financial statement.
  • Appraisal or Broker’s Opinion of Value - Current market value of your property.

Some lenders identify all your income as a potential debt repayment source. This is dangerous, as it could compromise your financial commitments to various ministries and missions. Make sure you look at the big picture. A good lender will not simply talk about how much you can borrow, but how much you should borrow, as well as what other options there may be for you. In other words, discuss a financing strategy rather than just a loan. A strategy may include some type of stewardship campaign to help capitalize the project, minimize the loan, and involve your congregation in the process.

Project Scope

In this step, you will begin building on the ministry needs and goals that you initially defined. Use that context to work with your designer and/or contractor. The end result should be a clearly defined project scope that meets your needs and a budget that fits what you can afford. While you are working with a lender, you should also begin identifying the project and associated cost. This can be accomplished with the help of a builder, architect, consultant, or even resources within your own church. Here are a few of the more common professional resources:

  • Contractors and Design-Build Firms. Many firms, especially those used to working with churches, will assist in initial project identification and estimation for no up-front costs in exchange for an opportunity to be your builder when the project progresses.
  • Architect/Professional Designers. Architects often structure their services in four phases: preliminary design and/or site planning, schematics, design development, and construction drawings. You do not need to agree to all of these services up front. If you simply need to establish some parameters of a project in order to get an idea of cost and scope, request only the initial phase. Although this will not provide you with firm pricing for a project, it is usually enough to determine a price range so you can determine if you are within your budget. As you move through the process, be careful not to let the architect’s design of the building be the driving force. Instead, let ministry need and your church’s vision drive the project.
  • Building Coaches/Other Church Consultants. Churches are a very specific field of construction and can be considered a hybrid of commercial and residential construction. Some churches elect to hire a “coach” or consultant to lead them through the process. Many of these experts can assist in the initial project identification through needs and ministry analysis.

Speaking with several experts simultaneously will help bring clarity to the process, project, and budget that are right for your ministry. Their expertise will also keep the project running smoothly throughout the process. As you begin to get the ball rolling in each of these areas, keep God’s vision for your ministry at the center. The Lord will guide and direct. It’s not the architect, the builder, or the lender you want calling the shots in this program. It’s Him.

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