Before mid-2008, most ministries had little trouble qualifying for financing. If they met a lender’s criteria, they were deemed a healthy borrower and it was simply a matter of time and paperwork before the needed funds were in hand.
Then the Great Recession hit, and when it was over, the definition of a “healthy borrower” had changed dramatically. I asked Mike Boblit, one of ECCU’s regional directors, a couple questions about this dramatic shift.
First question: What is one criterion used to underwrite loans that is dramatically different today?
Mike: I’d say the debt coverage requirement. Prior to 2008, if a ministry didn’t have past cash flow statements that demonstrated their ability to make mortgage payments of a certain size, they could meet this lending criterion by presenting a strong budget. Meaning, if their budget showed how they could cut other expenses to make a new mortgage payment, that would satisfy the debt coverage requirement. Today, borrowers must demonstrate, from historic cash flow statements, that excess funds are available to make a new loan payment.
Second question: During and since the recession, the term “tight credit” became commonplace. What does it mean and what is one significant way it has affected ministries?
Mike: Tight credit can be interpreted a number of ways. One is lenders being “tight” about lending money, with “tighter” borrower criteria. This has certainly affected ministries by making it difficult to find a willing lender or more difficult to qualify for a loan. Another way to look at “tight credit” is in reference to ministry borrowers. In this case, it means a ministry is highly leveraged. This looks like a loan payment that is 30 percent or more of a ministry’s income, which creates a tight budget that limits the ministry’s ability to make choices about how they use ministry funds.
I asked Mike these questions because he and two of his fellow regional directors will present a webinar on February 21 titled How to Look Like a Healthy Borrower. Besides their lending expertise, all three of these men gained a wealth of experience by working with ministries during the recession and helping them return to financial health.
When I asked Mike what people could expect to learn by attending this webinar, here’s what he said:
“We would expect attendees to have a better understanding of how a lender will evaluate their ministry’s ability to qualify for a loan. In other words, the criteria a lender will use to make lending decisions. Additionally, by understanding these criteria, attendees will have a better idea of how to prepare financially to borrow funds if their ministry’s strategic plan includes purchasing or building a new facility and using a loan as a portion of the funds to accomplish this.”
If you’d like more information about this webinar, you’ll find it here.