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.
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.
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.
Would you like to learn about important ministry financial issues like the impact of ethics on accounting and how to stay informed on legislative changes affecting ministries? What about fundraising best practices or the challenging task of aligning your ministry’s money and mission?
Gary Hoag serves as the Generosity Monk, providing spiritual and strategic counsel for denominations like the Evangelical Free Church of America and the Anglican Mission in theAmericas, and for ministries like Prison Fellowship and International Health Services. He will speak at each of the three 2012 California forums about your stewardship responsibilities as a leader and encouraging others to generously participate in your ministry despite tough times.
