ECCU Blog

One thing many ministries discovered during the economic downturn is that they weren’t as financially solid as they thought. As revenue declined, their financial vulnerability became increasingly apparent. Loan payments, for example, that once seemed realistic suddenly weren’t.

One way ECCU responded to this situation was by forming a new team to help struggling member ministries become financially healthy again. I asked Don Hughes, who led that team and is now one of ECCU’s regional directors, a couple questions about what we learned from this experience.

First question: By working with ministries that struggled financially during the recession, you discovered a link between strong leadership and financial health. Is leadership really that important?

Don: When it comes to financial health, solid leadership is not just important, it’s essential. We’ve learned that ministries with well defined organizational structures, appropriate levels of true accountability, and leaders who have transferable educational and business skills tend to be highly effective. These ministries don’t react to economic changes, they actually plan for them. Their strong leaders translate the ministry’s vision and goals into a workable budget that becomes a tool to help the ministry meet its financial obligations and continue to pursue its mission. Their disciplined financial leadership also includes implementing appropriate financial controls, closely monitoring and managing the ministry’s financial position, and making course corrections to stay on track.

Second question: How does a ministry decide how much debt is too much for them?

Don: This can be a complicated question to answer, but the first step should be to consider where their vision is taking them and whether acquiring debt is the most effective way to achieve that vision. Assuming it is, they’ll need to take a comprehensive look at their income. Based on historical data, is it reliable and sustainable? Is it stable, growing, or declining? They should then evaluate all their expenses and other financial obligations. This information will reveal whether there’s enough margin (positive cash flow) in their budget to maintain adequate reserves and financial flexibility. For churches, some experts use these budgeting benchmarks: Less than 35 percent for debt service, less than 35 percent for salary-related expenses, and at least 30 percent for liquidity and ministry. These are not absolutes—and certainly not applicable to all ministries—but they do provide a starting point for a “right-sized” debt discussion.                                  

I asked Don these questions because he’ll join two of his fellow regional directors to present a webinar on February 21 titled How to Look Like a Healthy Borrower.                                                                         

If you’d like more information about this webinar, you’ll find it here.

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.

One thing that distinguishes ECCU from other banking resources is the way we pursue our mission. While we are a financial institution, at the core we’re an alliance of Christ-centered people and organizations, mutually committed to fueling ministry worldwide.

This cooperative spirit will come into play on January 24 when David Lee, long-time ECCU ministry development officer, presents a webinar offered by a long-time strategic partner of ECCU—the Christian Leadership Alliance (CLA). Titled 6 Things Financially Healthy Ministries Do Right, this webinar will present insights and best practices from ministries like yours that stayed healthy during the recession.

To give you a preview of David’s presentation, I asked him a few questions:

MBG: Are the ideas you’ll present opinions or are they based on actual ministry experiences?

David: I’ll be presenting ideas and insights gleaned from discussions with hundreds of ministries by our relationship managers over the past several years. And while some of what I’ll cover is based on anecdotal rather than empirical data, all of it has been clearly evident in ministries that are financially healthier.

MBG: What’s one idea that every ministry should know?

David: We live in a world of quick fixes and hopes of an app that can resolve our problems, but there is no perfect solution, answer, or path to creating a financially healthy ministry. What may work for Ministry “A” may not be the best solution for Ministry “B.” However, there are foundational principles that we can all consider to help us mitigate risk and refocus our ministries on fulfilling God’s calling.

MBG: Will the ideas you present account for the fact that mistakes are sometimes the best teachers?

David: Absolutely! In fact, many of our findings are based on different ministries that have made similar kinds of mistakes. What makes learning from mistakes so effective is that we can see the actual consequences of mistakes made by others without having to personally experience those consequences.

MBG: What are three important takeaways attendees will learn during this webinar?

David: Here’s what I’m hoping they’ll walk away with. First, a better understanding of the six things financially healthy ministries do right. Second, at least one proven method for aligning their money with their mission. And third, practical measurements or metrics that we’ve found to be great indicators of a financially healthy ministry.

If you’d like more information, visit www.eccu.org/cla-webinar.

This is the final post in our series of email interviews with presenters for the upcoming 2012 Financial Forum for Ministries.

Dave Moja is a partner and national director of not-for-profit tax services with CapinCrouse LLP. He will discuss recent Internal Revenue Service (IRS), congressional, and court pronouncements. He’ll also talk about ministers’ payroll and unrelated business income as well as health care compliance issues. Here are Dave’s responses to my questions.

MBG: How will your presentation help attendees serve their ministries?

Dave: The tax laws affecting churches and ministries are constantly changing. And, in many cases, the accounting teams at these organizations do not have a central place—no “one-stop-shop”—where they can go to keep up with all these changes. This session will provide up-to-date information on tax and compliance issues that should be pertinent to attendees. They should leave better equipped to handle the continual onslaught of government requirements. We are most definitely in a “season of compliance.”

MBG: What are three important takeaways attendees will learn during your presentation?

Dave: The first thing attendees will take away is a summary of recent IRS pronouncements that affect their ministries. They will also receive practical insights and a list of the best methods for handling not-for-profit tax and compliance issues. A third takeaway will be predictive insight into what new requirements are expected in 2013 and beyond.

MBG: How will the format of the forum make it an even more valuable learning experience?

Dave: I will tackle the daunting task of keeping up with compliance issues by providing a number of handouts that should allow attendees to focus on the presentation and take valuable data with them for future reference. This kind of material is best explained in a give-and-take format, so attendees will have ample opportunity to ask questions.

Dave will present at the financial forum in Colorado Springs on December 4, 2012. Follow this link to learn more and sign up.

This is the fifth in our series of email interviews with presenters for the upcoming 2012 Financial Forum for Ministries.

Brian Kluth is former senior pastor of the First Evangelical Free Church in Colorado Springs, who commissioned him as a generosity minister-at-large to the global church, and founder of Maximum Generosity. He will appraise current funding realities in churches and ministries today and share best practices and resources that staff and leaders can use to inspire generosity and increase giving. Here are Brian’s responses to my questions.

MBG: How will your presentation help attendees serve their ministries?

Brian: Growing economic difficulties are leading to decreased giving in many churches and ministries. As a result, they’re having to adjust to a “new normal” when it comes to finances, fundraising, and budgeting. This session will help attendees discover practical and creative ways to move their ministries forward in the midst of tighter budgets and a challenging fundraising climate.

MBG: What are three important takeaways attendees will learn during your presentation?

Brian: Empty Tomb, Inc., reports a 40-year decline in the percentage of income that Christians in the United States donate. The first thing attendees will take away from this session is an understanding of how major national trends impact giving to ministries and churches. They will also discover ten ways God provides and moves ministry forward, including nine that are possible even when the budget says “no.” The final takeaway is a list of five key ingredients needed to make any fundraising and generosity initiative more successful in churches, ministries, and the work of missionaries.

MBG: How will the format of the forum make it an even more valuable learning experience?

Brian: A variety of valuable materials will accompany the presentation, including graphs on giving trends, lists of the 50 best practices to increase giving and 80 helpful websites, planning worksheets, and other generosity-related handouts. Attendees will return to their churches and ministries with many resources to share with staff, leaders, and committees.

Next up will be Dave Moja, a partner and national director of not-for-profit tax services with CapinCrouse LLP, who will discuss recent Internal Revenue Service, congressional, and court benefits. He’ll also talk about ministers‘ payroll and unrelated business income as well as health care compliance issues.

Brian will present at the financial forum in Colorado Springs on December 4, 2012. Follow this link to learn more and sign.