Recent studies show that church construction is outpacing construction in the private sector by a wide margin. New York-based Dodge Division of McGraw-Hill Construction research shows church construction rose by 14 percent last year.
According to Church Business magazine, that figure is even more impressive when compared to public buildings and amusement projects, which fell by 8 percent and 4 percent respectively. More than $21 billion of the $152 billion spent on nonresidential construction was spent on church development.
Along with that growth comes a growing need for financing.
Presbyterian Church (USA) Research Services Department's Congregational and Annual Report suggests that the larger the church, the larger the mortgage.
Departmental research shows that 40 percent of churches topping 600 in membership carry mortgages of $800,000 to $900,000. Of the churches with 250 to 600 members, 32 percent carry a mortgage averaging $300,000, while 18 percent of churches under 250 members carry a mortgage averaging $150,000.
Bank Lending
When financing construction, banks offer a number of options for churches.
Among them are construction loans, which typically are short-term loans that mature
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Most lenders will require onsite inspections of the work  often at additional cost to the church  prior to disbursing the funds. The construction loan typically calls for interest-only payments prior to completion and interest rates are usually variable.
The non-revolving line of credit is an alternative characterized by a streamlined, low-cost draw request and disbursement process with no onsite inspections. Variable interest rates and interest-only terms usually apply to this option.
Term loans come into play when the construction loan or non-revolving line of credit matures. Lenders will convert the outstanding balance to an amortizing term loan, with monthly payments of principal and interest calculated. While the loan may mature in five to 15 years, the amortization schedules are typically calculated for a longer period.
"The theory is that in a bank loan on church financing it's going to go (with a) 22- to 25-year amortization with, say, a five-year call. So at the end of five years you're going to have to extend for another five years," said Dennis Moses, a vice president at the church loan department for Bank of the West, a major church lender.
Frequently, he said, loans never reach maturity. Often, churches embark on a capital stewardship campaign to pay off the debt quicker, thus avoiding the need to recalculate the loan after that five-year initial period.
"When churches do capital campaigns, they are trying to get that paid off as quickly as possible," he said. "Another factor is that once you start a multiphase program, a lot of times the debt that you incur (in the beginning phase) will be paid off with the new loan at hopefully a lower interest rate sometime in the future. There are so many variables to come into that scenario."
Bond Issue
A second option available to churches is a bond issue. In this option, the church sells bonds that mature after a fixed period to members or outside investors. During this period, the church makes monthly payments on the principal and pays interest either semi-annually or when the bond matures.
"Instead of borrowing $1 million from ABC Bank, they issue $1 million in bonds and sell those to however many different people it takes to sell them all," said Alan Barclay, president of Houston-based Security Church Finance, Inc. "You may have 60 or 80 or 100 investors invest in the bonds."
Barclay said a typical period for a bond issue is 15 years. This method is popular with churches because it offers stability and security that may not be present in bank lending.
"On a 15-year bond issue, they know what the interest is because the interest rate is fixed for the full 15 years," Barclay said. "A lot of times banks will fix their rates for three or five or seven years, but they don't like to go much longer than that. They will calculate your payment as if it is 15 years, but every so many years they look at where rates are and if rates have gone up, then your payments are going up."
Not only do bond issues help churches budget and plan, he said, they allow them to reward members who invest in the bonds.
"If the church is going to take (on) debt and borrow money, then at least the interest they are paying is going back to their members, to the extent that they buy the bonds," he said.
The interest church members can earn on a bond is substantially higher than what banks pay for savings deposits and money market funds.
Members who invest in the bonds not only earn interest, they also earn a sense of accomplishment for having supported their church's building project.
"If you have a bank loan, the church treasurer writes a check once a month to pay the loan," Barclay said. "It doesn't really affect the members. They're giving their tithe and offerings, but they don't really see any money transacting."
When they invest in the bonds, he said, members feel like they have had a direct part in helping the church grow.
"They know, ‘OK, this is what built my church. I'm seeing a return on that.' They have a piece of that investment, so they feel like they are a real part of it," he said. "There's no mistake about it. The members are the ones who are paying for any new building you get, whether you do a fundraiser, a capital gifts program or however you do it, those members are paying for it."
Another benefit is that they are open-ended so churches can issue bonds on a subsequent construction phase without retiring the initial bond.
"We've had churches do up to six issues," he said. "They can keep their payments lower instead of having everything with the higher rates. Over the years, that has saved churches millions and millions of dollars just by not having to refinance low-rate money when they want to build again."
Stewardship Campaign
Since the congregation is going to pay for the building anyway, churches have relied on capital stewardship campaigns as a fundraising means to let them pay for it directly.
Capital campaigns allow members to pledge specific amounts of money that will be spread out over a period of years to pay for the project. The campaign is over and above any money the member regularly contributes in the way of tithes and offerings.
"I think it's advantageous to have a capital stewardship campaign before you go out and borrow the money," said Bank of the West's Moses. "Otherwise people sitting in the pews say, ‘Well, the church doesn't need my money because they've already borrowed the money.' They're going to find, unfortunately, excuses for not giving back to God what he so abundantly has given to us for stewardship."
Giving back to God what is already His is at the heart of stewardship  and not just during special campaigns  said Howard Nourse, a founding partner of the Timothy Group in Grand Rapids, Mich.
"Stewardship is a lordship issue," Nourse said. "Stewardship is recognizing that God owns it all, He created it all and He never gave up His ownership, but He entrusted it, in different amounts, to each of those He created in His image  amounts of time, talent and treasure."
He said stewardship, as it applies to such things as capital campaigns, is a matter of prioritizing what God has entrusted.
Typically, churches will hire a company like the Timothy Group to help launch stewardship campaigns, relying on their experience to motivate the congregation.
"My goal is to help any given church recognize that God owns it all and to be motivated to respond to God's love gift by following what He is asking us to do  to prioritize and to do it as a heart response," Nourse said.
People, he said, respond to matters of finance either from the heart or from the brain.
"When we deal with issues from the brain, we have a tendency to think in terms of ‘mine.' When people are limited to responding to God from their brain, with logic, they generally are responding from the surplus they have after they've taken care of the things that are important to them," he said.
"When we respond through the heart, it is a response in faith. In order to respond from the heart, it has to become a faith issue. When it is a faith issue, that naturally lends itself to think ‘What does God want me to do with that which he has entrusted to my care?' and it becomes a substance response, not a surplus response."
The reason churches need companies that specialize in stewardship campaign is because church members need gentle prodding to think from their heart, he said.
"The majority of people in the United States  evangelicals  are still thinking with their heads. So, my goal in a stewardship campaign, simply stated, is that people will open themselves to the work of the Holy Spirit in their heart and then be responsive," he said.
"It's not a matter of saying, ‘How much should I give,' it's a matter of saying, ‘Lord, what would you have me do?' The great thing about that process, if we do it with great faith and humility, is you cannot out-give God," he said. "That doesn't mean dollar-for-dollar. It might be other things, but God will bless what you do for Him from the heart."
