Before the economic downturn, many churches thought that growing attendance translated into greater giving. And often, it did. So lenders were inclined to look at attendance growth when evaluating how much new debt a church could handle.
But what has the recession taught us? Is this a valid criterion for determining the loan size a church can handle today? To find out, I asked Jeremy Moore, one of ECCU’s regional directors, a couple questions.
First question: If a ministry is growing rapidly, it seems reasonable to expect a lender to consider their potential for greater giving when determining the amount of money that ministry qualifies to borrow. Is that how commercial lenders see it? Why or why not?
Jeremy: One thing we learned in the downturn was that relying on continued growth in attendance and giving is dangerous. Lots of ministries that struggled to meet obligations ended up there because of their expectation of continued growth. While it’s certainly good to hope and plan for growth, one must also be careful to build in margin and have contingency plans in place in the event that growth doesn’t materialize. In today’s market, lenders (including ECCU) rely almost exclusively on historical results when determining a ministry’s ability to service future debt.
Second question: Cash flow can become a problem for any ministry. Can it be a problem when a ministry is applying for a loan? Why?
Jeremy: Cash flow is important for all kinds of reasons. One is because a ministry that manages cash well has the ability to react to unexpected opportunities and challenges without unnecessarily jeopardizing their ongoing ministry. From a loan perspective, lenders are typically looking for borrowers who have built margin into their cash flow. This is why having the ability to comfortably make mortgage payments should be budgeted before the loan application process begins.
I asked Jeremy 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. All three of these men have a wealth of experience gained by working with ministries during the recession and helping them return to financial health.
To wrap up, I asked Jeremy what people can expect to learn by attending this webinar. He simply said, “They’ll learn how to look and act like a borrower before applying for a loan.”
If you’d like more information about this webinar, you’ll find it here.