The Church Borrowing To Build: Let Borrowing Serve You

Joseph R. Miller

Certainly the concept of borrowing money has been abused. Many have become slaves to debt (defined as excessive borrowing) rather than making debt (defined as reasonable borrowing, better identified as loans) serve them. I believe the church project can be partially funded through borrowing without violating biblical principals governing interest and payment of loans.

Borrowing should never replace stewardship. Challenge your people with the Word
of God to an enlarged faith that would encourage giving beyond the visible
assets of the moment in trust agreements with God. Accept the possibility with
God of sufficient cash gifts for the project. Raise all you can.

However, waiting for cash to build in some instances is costly. You may miss the
opportunity to purchase a suitable building site when it is available. Inflation
could increase building costs more rapidly than your building fund is increasing. A congregation usually becomes weary and disheartened if they see little progress. Capacity crowds in the present facility may eliminate your ability to grow. Occupying a new facility may allow you to reach more people for Christ who can also give to eliminate the debt that made it possible to reach them.

Conservative guidelines of borrowing need to be followed with professional
documentation to avoid pitfalls and legal entanglements:

- Maximum debt load should not exceed three times the church`s annual income.

- Avoid commitments with prepayment penalties, so that the loan may be prepaid as the Lord provides the funds through His people and His blessing.

- Debt service (amortization) should not require more than one third of the
church`s total budget. Debt service plus giving to missions should not exceed
one half of the church budget, leaving half of the budget to achieve the
program of the church—discipling people.

- Direct annual surpluses and sacrificial offerings to prepayment of the loan.
Complete payment of the loan as rapidly as possible; don`t be satisfied to
simply meet the monthly amortization schedule for 20 years.

- Maintain at least a 50 percent net equity on capital assets when the building project is completed. (The true value of the property should always be worth at least twice as much as you owe.)

- Try to avoid all balloons. Especially avoid balloon payments on loans during
the continuing period of debt service. When deemed necessary, the balloon
could be placed at the end of the amortization period with potential for refinancing if the balloon has not been prepaid. Again, no balloon is the wisest way and least costly.

- Be aware than when a twenty-year bank loan is reissued in five years that
most banks require payment of the service/loan initiatio charges again, along
with the prospect of a different interest rate, possibly higher. Compare the
costs of a secured bond issue with a fixed interest rate for the duration of the loan.

- Never use negative amortization, adding unpaid interest to the principle; you could owe more on the property than it is worth.

- Obtain evidence that the building can be completed for the project budget.
Most lenders will require evidence of contracts for completion within the proposed project budget so the building can be occupied to generate amortization funds. Building and zoning ordinances may dictate removing an unfinished building.

- Don`t let gifts designated specifically for added features of a building jeopardize your ability to complete the basic building. Avoid risking the present control or future plans of the church with memorial plaques that maintain individual control of the item.

- Beware of combinations of debt that make debt service a burden with several
payments due at the same time.

- Anticipate the need for maturing the debt service when the building is at
capacity. That`s ten years, if you provided the potential to double your capacity when building and have a net growth of 7 percent a year.

- Seek trustworthy, professional church funding counsel. Don`t make blind
commitments.