3 Ways to Manage Church Debt Well
Today’s reality is that most churches will need to secure debt to obtain the facilities they need to minister to their communities. Here are three ways churches can be good stewards of the resources entrusted to them while managing their debt.
1. Debt should only be secured for critical items when considering a project. While marble floors and stained-glass windows may be beautiful, these items add to the project cost and increase the debt that needs to be secured. I met with a building committee and the Trustees of a church, and several of the Trustees were adamant about the finishes of the building. The church’s pastor stood his ground on the construction budget not including unnecessary things for the building to be functional. He offered to allow those men to fund these items if they really were passionate about them. Then something amazing happened: these men took out their checkbooks and wrote checks to cover the items they wanted in the building.
2. Learn to value engineer the building with the contractor and architect. Architects tend to design buildings for aesthetics instead of function, and often more economical alternatives can achieve the same result. During this phase, the church should also consider investing in items that will reduce costs in the future. Adding LED lighting and spray-foam insulation may cost a little more upfront but significantly lowers utility costs.
3. Look for a lender who does not charge a penalty when the church makes a principal payment. Banks often ask for this provision to offset the risk of a borrower refinancing the loan during its term. An alternative that banks usually will accept is to allow principal reductions from funds generated from the church. The church can also secure a loan from a church-friendly lender like the Southern Baptists of Texas Foundation, which does not have a provision for early prepayment penalties. Without the prepayment penalty, a church can systematically reduce the debt by paying extra on the loan as funds are available.
While debt in ministry may not be avoidable, taking steps like those mentioned to reduce the cost of this debt allows a church to be good stewards of the resources God has entrusted to them.
Michael Rhine | Director of Church Lending