Pitfalls to Avoid when Considering Church Construction, Part 2

Church Loans

Part 2: Source and Use

In this second installment of this three-part series on church construction, we are stressing the importance of planning for a project that fits your budget. To help with this topic, Shawn Fink, Church Loan Consultant, will share his experience.

Often, lenders and others will refer to “source and use” as it relates to a project and budget. “Source” is simply the source(s) of funding for a project, and “use” is the cost of the project itself. The big idea here is that in planning a project, you should determine your sources of funding and anticipated total amount available, and plan your project so that it stays within that amount.

Typically, there are three sources of funding for a church project; money you have, money you raise, and money you borrow. Unfortunately, most churches don’t consider financial preparation for a project until it’s time to actually start construction, but Shawn encourages, “Having cash reserves on the front end gives you mobility to do everything from feasibility studies, to project planning and schematic drawings that can assist with project estimating all before you have committed yourself to anything.” Although most churches do not want to start raising money prior to a project, Shawn shared that it can make the process of planning for and defining a project much smoother, and helps ensure that your source and use align as you cast vision for the future. To learn more about casting vision for a building project, check out our white paper on “Cultivating Generous Givers.”

As you are considering the use, start working on figuring out the source. Most churches are naturally forced to start thinking about a project because of growing ministries and facilities needs. Consideration of your source of funding may need more intentionality.

Shawn states, “The pre-planning stage and consideration of source and use is critical. Many churches make the mistake of spending thousands of dollars and significant time designing plans for a project, only to find that they cannot afford it once they find out how much it would cost. Churches should start the process of determining source and use simultaneously so that the cost of the project meets the affordability.”

“A loan is often required in order to complete a church construction project, so one of the first things we encourage churches to do is determine their debt capacity. That doesn’t mean the church should borrow to the maximum of what a lender would allow, but knowing that threshold is good data to have when trying to determine your total source.”

In Part 3 of this series, we will cover the importance of choosing the right lender for your church. When you find a lender that comes alongside your church as a partner that believes in your vision, it makes all the difference.

Click here to read Part 1 of this series where we covered price increases and how they could affect your church construction project.

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