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| Photo by Steve Johnson |
A large church expansion project is no joke. Many of our
clients take on financial obligations worth millions of dollars.
But “debt” can be a dirty word in church circles. After all,
many churches have embraced and promoted financial management advice from the
likes of Dave Ramsey, who insists that “debt is dumb”
and everyone who carries it is essentially “a slave.”
Of course, not everyone agrees with Dave Ramsey. But the
question deserves attention: how should church leaders conceive of and explain
debt to their congregations? What is the proper view of debt—a view that’s
practical, wise, strategic and God-honoring?
Before we answer that, a caveat: It isn’t our purpose here
to address the issue of personal debt. We’re talking specifically about the collective
debt assumed by a church-wide community undergoing a capital building or
renovation project.
In these cases, our role is to coach church leaders through
their financing decisions. Each project is unique and so the particular advice
we give varies. But two general principles always apply:
1. Debt is a BURDEN.
2. Debt is a RESOURCE.
These principles may seem at first glance to be opposites.
But both are equally true, and it’s important that church leaders recognize
that to avoid an overly simplistic view of debt.
In this blog, we’ll discuss the burden of debt and how
churches should approach it. In our next blog, we’ll discuss debt as a
resource.
Debt As Burden
Churches should understand the full implications of the debt
they accrue and take them seriously. First of all, borrowing money is a
responsibility over time—a long-term commitment by the community. Second, borrowing
money costs money. To hold interest
totals to a minimum, churches should seek to pay off their loans as soon as
possible. That requires strict planning and fiscal policies. So church leaders
should plan carefully how they’ll deploy these policies.
Another consideration is the percentage of total project
costs that a church needs to borrow. Most lenders today allow up to an
80-percent loan to value or loan to cost ratio. Leaders should think about
current properties and budget, and whether ongoing debt service at a particular
rate will cut into the church’s “buffer” capacity in case something unexpected
happens.
In other words, a church should be reasonably able to weather
anything that comes its way. It’s not wise to play too close to the line in
that regard—a church that cannot pay its bills due to unwise financial
management or overdone debt is not representing God, its leaders or attendees
well.
All of that said, debt need not make slaves of those who
carry it. The key for any church is to carefully identify a workable amount of
debt, and then create policies to manage it wisely.
Questions to
consider:
-How much will this loan cost us, including interest and
fees?
-What is a feasible payoff timeframe?
-What are the risks?
-Is it reasonable to expect increased revenues due to expansion?
-How much does the church plan to save?
-What percentage of our total costs are we borrowing?
-Will we receive any benefit, such as the sale of old
property, when the project is complete?
-Will debt service cut into our buffer and create a problem
if our budget experiences an unexpected downturn?
Development Advisors
offers A to Z project management services, from strategic planning to moving in
to a new building, to Front Range churches seeking to expand. For more
information, contact Scott McLean at scott@developco.com.
Read our next blog for
more about debt!
