Loan Consultant – In this role, we will accomplish several things. First, we will assess their financial health as well as a few components of their operational and organizational processes. Second, coming out of the assessment, we will identify areas where adjustments can be made and help the ministry make those changes. Third, we will structure the loan request, prepare the application, and identify potential lenders. Finally, we will present the application to potential lenders and work with them until the loan is funded.
Translator – Throughout the process, we will act as a translator to improve communication between the ministry and potential lenders. We recognize that most lenders make just a handful of ministry loans each year and most ministries only seek out financing every 5 years or so. These two groups lack familiarity with one another. Our consultants have been involved in more than 1200 loan transactions in the last 15 years. Our experience with both churches and lenders enables us to help our ministries understand how best to respond to lender inquiries.
Project Manager – Funding a loan requires the coordination of resources and people from several different organizations over an extended period of time. It also requires that everyone have the same sense of urgency for funding the loan. It is nearly impossible for a ministry staff person with a full time job to coordinate the project. For that reason, we take on a significant amount of the project management responsibility.
1. Loan to Revenue ratio - A solid result for this ratio is 300%. The maximum loan is 300% of the annual revenue for the church. That means that a church should be able to make expense choices that allow them to cover the payment on a loan of that size. If you are operating at a break-even today with little or no debt, and you are planning on increasing your debt, you will experience something known as payment shock. That simply means that while your ministry shows enough gross revenue to make the payment, those dollars are currently being spent on other things. You do not show excess cash being generated on a monthly basis to make the payment. You'll need to create a budget that reduces some of those other expenses to make room for the new loan payment. And you don't get to increase revenue to make up the difference.
2. Debt Service Coverage ratio or Payment Coverage ratio - This measures the ministry's ability to make the payment based on the net cash from operations generated by the ministry. Add your net revenue for last year to the interest expense and the depreciation and amortization expenses and then divide that number by the proposed annual loan payment on your new loan. If you don't want to, or can't calculate that payment, just use $80,000 per million dollars of loan. This ratio should be 125% or more. So, if you are borrowing $1 million, the net cash from operations would need to be $100,000 (100,000/80,000 = 125%).
3. Loan to Value ratio (LTV) - Almost all ministry lenders will require an appraisal to determine the value of the property. That value will need to exceed the amount of your loan by about 33% to 50%. Those margins would indicate LTV ratios of 65% to 75%. That simply means that, if the ministry is purchasing a property, they will need to contribute 1/4 to 1/3 of the purchase price as their down payment. Even of they are applying for a construction loan or refinancing their existing property, these ratios will apply. The lender wants the ministry to have some equity in the property.
These are three of the ratios used to determine a ministry's borrowing capacity. If you have calculated these ratios for your ministry and you are coming up short of what you were hoping to borrow, you're not alone. You, and most other ministries, will likely need to make some operational changes and make some different choices about how you spend money in order to qualify for the amount you desire. And it may just be that the loan size that you desire is just too far out there for your ministry at this time. In either case, we can help you to develop a plan to get you where you want to go. Use the submission form on the Contact page or call us and we can discuss next steps.
We can help you structure your new loan...
The best time to think about aggressive debt reduction is when your ministry originates a new loan. We can help to not only place you with experienced, low-cost, ministry lenders, but we can also help you put a plan in place that could help your ministry save as much as 50% on your loan. Contact us.
When debt is too large, or just too expensive, loan payments and staff expense can overwhelm a budget leaving less than 10% of total donations available to fund outreach and other ministry. That means that opportunities to change lives go unfunded. There are stewardship principles that can be implemented to avoid this. It is our passion to see that these principles are introduced to ministries and that they are equipped to actually make the changes required to implement them.