New Facility - How Much Debt Is Prudent

In addition to cash and fund raising efforts, nearly every church facility relocation project today requires a certain amount of debt in order to be accomplished. Most lenders will tell you that a church’s total facility expenses should not exceed 35% of its annual budget. In fact, in a bond underwriting, this is a statutory limit. Even at 35%, this is a tremendous burden on a church. So how much is prudent?

Frequently, Development Advisors is asked about the amount of debt that a church should take on. Here are some ideas worth considering:

a. In general, we believe it’s only prudent to take on as much debt as can be comfortably managed during stormy seasons.
b. Borrow only as much as you can pay back. Church properties typically sell in the after-market for considerably lower than their replacement costs. A church should not borrow more than the future value of the property. The reason that church properties sell so inexpensively is that they simply have very little demand (so few possible buyers). Little demand means a lower selling price.
c. Discern what is really needed as opposed to what is desired. Borrow money for real needs necessary to evangelize, worship, teach, disciple and to help others recover.
d. Borrow only as much as the church can allocate from a modified budget for future additional debt service and operating expenses.
e. Finally, the leaders of the church have a responsibility to discern God’s leading in prayer.