The Basics of Church Construction & Financing

Financial Solutions and I am excited to introduce our experts in today's webinar on church construction and financing. With us today is Sean Fink, from our Construction and Facilities team; we have Randy Smith, Loans Consultant; and Phil Dross, Stewardship Consultant. Each of the guys here represent decades of experience and expertise in their respective areas, but together represent a very well-rounded point of view when it comes to expanding ministry and the right ways to do that. Now, if you have any questions along the way, please submit them to us in the GoToWebinar control panel seen on your screen, and we will do our best to answer all questions during the Q&A portion towards the end. Without further ado, here's Sean.

Thank you very much, Andy. So, to kind of start off with the basics of church construction financing, my particular role is within the church construction world. I want to start out talking about planning for your ministry needs. So, if you could take a look at the slides, one of the biggest questions we get is how do you know it's time to expand, even begin looking at this? Several of the points here: you cannot accomplish the ministry God has called you to due to the space limitations that you have. This typically comes up when senior staff, lead Pastor, begin hearing from different ministries within the church saying they're out of space, or different ministries begin vying for the same space, or you have current ministries fighting for the same space. Growth becomes inhibited due to lack of facilities, or your current facilities are outdated, stale, or inefficient. Obviously, this is just a few of the reasons that may come to light as you begin realizing that it's time to expand or time to grow.

A couple of the reasons that it would not be a reason to build: just because another church down the road did a project, or if you have the mentality of, "If you build it, they will come," simply because it really should be more of a grassroots, inherent, you know, come from within kind of a thing. It's not always a given that if you build it, they will come, and nor is it a given that a successful project for you would be the case just because it was successful for another church down the road. So, what we usually say is, you know when it's time—every church is unique, every church is different, and every church is going to come to these conclusions in their own way.

Another great question, a very, very typical question, is how and where do you start? Church building programs can be a very, very, very complex animal. Sometimes it seems that you have many, many options and no options all at the same time. What we encourage churches to do is to really stop and consider who they are as a church. What is their DNA? What makes them unique? What has God called you and your church to do, and how has He called you to do that? What is your vision for ministry? What makes you different than the church down the road? What are the very specific things that God has called you to relative to your ministry? And so the idea is to take those things and really translate that into what the facility should look like. The mission is the implementation of the vision there, as it says, and so once again, the facility should really kind of be birthed out of the vision that God has given you for your ministry. Viewing the problems and solutions through the lens of your vision in order to move toward the right building project is usually, once again, the place that we recommend churches start, so that the ministry facility that you end up building is the right one for you and accomplishes ultimately what God has for you to accomplish.

So, there are many different types of projects out there. You have new builds, additions, remodels, renovation improvements, and then we call it FF&E—Furniture, Fixtures, Equipment—but there are times when churches don't necessarily need to build anything, but sometimes it's time to, for instance, redo a sound system, recarpeting, painting, chairs, tables, etc. So, those are just a few of the sort of common projects that are out there. But before jumping into that, what we recommend is that a church really take a very, very detailed look at what they have now. What's around them? What do your current facilities look like? Are there HVAC units that need to be replaced? Is the roof leaking? Are there major issues there that really should be addressed now? One of the reasons for that is because if you get yourself into a building project, a building program of some sort that obviously carries with it costs, budgets, etc., and you can always, or are often, I should say, run off track when some of these surprises come up, and there's deferred maintenance that all of a sudden you have an emergency that needs to be dealt with. So, it's always a good idea to figure those things out ahead of time before launching into a project.

Are your current facilities maximized? There are many churches out there that quickly jump into a new project when the facilities that they have just simply aren't being maximized and used to their extent. One of the examples that always comes to mind is a church that we worked with recently that was out of space, and they enlisted the services of an architect who drew a new sanctuary for them. Unfortunately, they really did not have need for a new sanctuary; they really needed space for their kids' ministries. The church happened to have a full basement under it that was completely underutilized, and so they ultimately remodeled that space for a fraction of the cost of what a new sanctuary would be, and they met the need. And that's part of what we spoke of earlier, as you look at your DNA, who you are, what the ministry need really is, and then begin tailoring the project to that. So, maximizing your current facilities, as well as taking care of deferred maintenance items on your current facilities, those things are all marks of good stewardship.

How much will the project cost? What can you afford? As you walk down this path and really begin to get a handle on what it is you really need to do—you know, you've looked at your DNA, you've considered the mission, the vision, what God's called you to—and it's really time to begin putting pencil to paper: What is it that we need? This is, as well, the time to perhaps begin looking at what you can afford. And oftentimes we realize that, see it very, very often, that the need often well surpasses the resources that you have. Those are the times we'd recommend looking at a master plan for your facilities, for your property, for your buildings—sort of a roadmap for the future—and then begin pairing that down into more manageable phases, once again prioritized based on what is most important for your ministry. And so when you get to that point, you begin looking at that, you begin trying to match up what the real cost is of accomplishing that versus what you can afford.

And so in looking at the cost of a project, one of the most common mistakes churches make is that once they determine what they think their budget is, they will design a project to that number. They'll design the project, the building, according to everything that they can possibly raise or borrow or otherwise afford. What happens is some of the costs in there really get missed; for instance, soft costs like design, engineering fees, and then furniture, fixtures, equipment—those other things that really are very, very necessary for most churches to have. Those things need to be considered; they need to be thought of as part of the project budget. And so what we recommend is that churches determine, as best they can, what those soft costs are, what the furniture, fixtures, equipment costs are, and then whatever's left there is really what the construction budget should be. That really dictates what, for instance, an architect should be designing a building toward in terms of an overall budget and overall number. So, once again, the idea is to think about the cost of a project being in three parts rather than just the cost to build a building.

The other recommendation is to always have a contingency factor that you would carry. Traditionally, everyone's heard the stories about churches that are built and they go over budget, and things happen, particularly in remodel situations where it may be a little bit more difficult for a contractor to plan for things and some of those things that are behind walls that are unknowns. But even in new builds, to have a contingency factor, and we recommend at the early stages in a project, before you've really gotten down to the true, true final design, you might carry as much as 15 or 20%, and then as you begin focusing in on the project and what it really looks like and being able to get decent market bids and prices for what's there, always carry a minimum of 10% as you focus in on that, so you can lower it from that 15 or 20 down to 10 as you have a more focused design, a focused project. Now, oftentimes that can be, that can be changes that are maybe driven by the church where the church decides they want a more expensive finish product than may have been originally specified, or they want to move a wall, make a change, etc. Those are what would be referred to as owner-driven change orders, and that's part of what the contingency is there to cover, as well. Contractor-driven change orders are another where the contractor perhaps missed something in his bidding or plans or simply just missed it altogether, or simply just did not accurately count the cost. The final source, and frankly the source of some of our largest change orders that we've seen, are city-driven. In most communities, obviously, and the exception being some smaller—there are churches being built in areas where we do not have building officials and building inspections and plan review, etc.—but in most communities we do, and oftentimes, as I said, some of the sources for the biggest change orders come from the city because there's times when they miss things in the plan review that they will come back and ask for later. In addition to that, there are always the public infrastructure issues that can sometimes come back to bite a church, and those are just costs that sometimes you just can't, you can't count them ahead of time because nobody knows. Those three areas, those are some of the most significant sources of change orders, which is why we recommend carrying the contingency factor.

So, we discussed the three areas of hard cost, soft cost, and FF&E to a project. As well, there are typically three sources of funding your project. And so again, the idea here is as you begin focusing in on what the project is, in one hand to look and count the cost of the project in those three areas plus your contingency, and then on the other hand to consider your sources of funding for a project. Most projects that we are involved with are funded by more than one of these; it's typically two or all three of these sources of funding: money that you have, which might be just cash on hand, or maybe there's a specific building fund that the church has that's been growing, or there's money that you would raise via a stewardship initiative or capital campaign of some sort, and then there's the money that you borrow. And we always like to look at that money that you borrow as being the last and final piece, simply because that's the most expensive means by which you're going to come by the resources for building the project. And so try to minimize the interest that you would pay, obviously, and then minimize any long-term debt that you would have. So, in a nutshell, that's the construction portion of this. I would like to hand this off to Randy Smith, our Loan Consultant, and he was going to talk a little bit more about sources of funding for your project.

Well, thank you, Sean, and good afternoon, everyone. You know, I guess in a perfect world, churches wouldn't have to take out loans, wouldn't have to borrow money, but I guess I'd have to find another line of work if that was the case. But, you know, we met yesterday with a church, for example, in Illinois; they're considering a $2.5 million project, and obviously don't have—not surprisingly—don't have $2 million sitting in the bank to finance their project. So, you know, unfortunately, with the reality of construction costs, with capital expenditures for building programs, most churches are going to have to borrow funds to complete their project, and it becomes a just a necessity for a growing and expanding ministry. So, as far as looking at, in this first slide, when your church should consider borrowing money, these are some circumstances that we look for. First of all, of course, is borrowing is appropriate to prudently finance an expansion of ministry. And again, what we're talking about here is expanding the reach of your church, accommodating more people, serving more people, expanding the Kingdom through your ministry of your church, and obviously looking at a capital expenditure to do so.

Secondly, we obviously, we like to look for a healthy church, and healthy both in terms of finances and ministry. Is the church growing? Are people being saved? And attendance figures moving in a positive, positive trend? Thirdly, looking at financial records—any lender that a church will talk to, you'll need to support your argument for financing with accurate, up-to-date financial records. Typically, three years of records are going to be necessary for that purpose. As I mentioned before, we like to see positive trends in giving and attendance in the church. And then lastly, strong and stable leadership. You know, obviously a well-tenured pastor, a church board that shows depth of leadership and stable leadership is an important consideration as well. Conversely, some circumstances in which a church should proceed cautiously, or in many cases not proceed, with borrowing money—these are kind of the warning signs that we see. Certainly, if you're seeing a decline in contributions or attendance, the concern there, of course, is taking on debt that the church may not be able to afford in the future if attendance and contributions continue to decline. Obviously, that could be of great concern to the church. Secondly, looking at membership that's not fully committed to the project or to borrowing, or to the very concept of borrowing, is something that pastors need to consider carefully, certainly to address questions and concerns, first among board membership and leadership of the church, and then secondly among the general, general membership of the church as well. And then lastly, the last three are somewhat related, but certainly we would never advocate a church borrowing for operational expenses. Our loans are tailored and targeted specifically for capital expenditures, building projects, property purchases, capital acquisition, those kind of purposes. And so you wouldn't want to borrow funds, obviously, just as you wouldn't for your personal household to cover operational expenses, a shortfall in funds, or lastly, as an alternative to belt-tightening. And certainly, with the economy the way it is today, we're seeing a number of churches in some locations struggling with their finances, and very often the answer to that is to focus on the cost side of the equation. What changes can you make to reduce your expenses to bring them back into line? And frankly, taking on additional debt in that environment is the absolute worst thing you can do.

As far as looking for a loan, once you've determined that you are in need of financing for a project, how do you go find a loan? And again, with all the advertising and information you can find on the web, this typically isn't a big problem. Finding debt in the United States is not usually too difficult, but these are some places to get some informed information. You know, talk to other churches, talk to pastors in your community. You might, if you see a church that's going through a building project and you know the pastor, you know, you can visit with them about how they're financing the project, where they were able to obtain financing. Denominational sources—obviously, if you're part of the AG, there are funding sources available here at AG Financial. Banks are obviously a very typical place to find financing, and the first place to start would be to check with your local bank where you do your checking, you have your savings account, and often those banks will be able to provide you with a financing proposal for a commercial type loan. Other options are credit unions, and in some cases, although we're not seeing a lot of activity right now in terms of bond financing, but that can be another source of financing for your project. Just a cautionary note about mortgage brokers: Be very careful. I've seen some churches make some mistakes in that regard. Mortgage brokers can be very expensive. My general experience has been that a church that can afford a loan doesn't need a mortgage broker, and if you can't afford a loan, you shouldn't be taking one out anyway. So, I don't recommend that churches, in most cases, don't need to pay the fees associated with paying someone to go find a loan for you. And then lastly, the importance of comparing apples to apples on your financing terms. And this is something we run into a lot. Churches tend to gravitate or look specifically at the interest rate they're going to be paying on their loan, and very often ignore some of the other components of a loan: the costs associated with putting a loan in place, prepayment penalties, the type of loan—balloon note versus an adjustable rate loan, for example. So, it's very important that you don't just compare financing offers on an interest rate to interest rate basis, but you look at the total package.

As far as what it takes to qualify for a loan, I guess speaking as a lender, this is what we look for when a church approaches us and is interested in taking out a loan. We like to see a history of operations—typically at least three years of operation for the church—positive cash flow. Obviously, we'd like to see a church that has a black bottom line, that is not running operating deficits, a good credit history. If they have other, have had other loans in the past, either with us or with another lender, has the church maintained a good payment history on those? Sufficient collateral—typically we're talking here about real estate, the value of real estate that will be securing your loan—and I'll talk about that more in the next slide, looking at some ratios there. Strong, committed church leadership—again, we look for the tenure of the pastor. Has he been around for a while? Has there been a lot of changes in leadership? Obviously, that would be a concern. And then lastly, as I mentioned a few moments ago, looking for positive financial trends and trends in attendance as well.

This slide is probably the question I most often get, where the pastors most often go to first: How much can I afford to borrow? And there's no black and white answer to that. These are some guidelines that we use. Generally speaking, we don't like to see a church spending more than one-third of their operating budget on a mortgage payment, and I guess a typical pie chart that we would look for, for a church, if you want to think about it that way, would be about a third of the pie, at maximum, being used for a loan payment, about 40% for salaries and benefits, and so those two comprise not more than 75% of your budget, which would leave 25% for everything else—insurance, ministry operations, and what have you. Generally speaking, kind of a rule of thumb, if you take the general fund income of a church, multiply it times three, you'll come pretty close to the debt capacity of a church, or the maximum amount of debt we would recommend for a church. So, a church with a half-million-dollar operating budget, you know, generally speaking, that would equate to a loan of not more than about $1.5 million. Lastly, a ratio that banks look at, and I'm sure you've heard of, is the loan-to-value ratio, or an LTV ratio. Generally speaking, lenders today don't like to see that ratio more than 70%; again, the desired target here would be under 70%, which means you'd have at least 30% equity in the project.

How much does a loan cost? And here again, I mean, most churches tend to jump right to the interest expense, and that obviously is a key direct cost of a loan. There are other direct expenses associated with taking out a loan: origination fees, appraisal costs, which can be, you know, three to four, five thousand dollars for an appraisal; you're going to have closing costs from a third-party title company. But there's also indirect costs that a lot of churches don't think about or can miss or ignore, and these are important as well, and I've listed a few here: default rates. You know, what happens if you miss a payment? In some cases, lenders immediately adjust your interest rate to a default rate, and many times it can be an exorbitant interest rate that you're facing. Compensating balances—that just simply means, in some cases, banks will require a church to maintain cash balances of a certain amount as additional collateral on their loan. You know, that can be $10,000, it can be $100,000 that the bank requires a church to maintain in cash on deposit at the bank in addition to your collateral. So, that's something to consider. Auditor fees—that's a big one. Very often, a bank will require a church to have an annual audit performed of their financials, and for a church that's never been through that, that can be a very expensive and time-consuming proposition. Personal guarantees—we don't see that much anymore, but that's something is a definite red flag if you have your lender that wants to have the pastor or board member sign personal guarantees for the church loan. I would run the other way; that's certainly nothing that we would recommend or advocate under any circumstance. And then lastly, just the costs associated with a permanent loan versus a balloon note. Most banks offer what are called balloon notes—three or five-year balloon notes—at the end of which the note comes due, matures, and often a church may incur additional costs at the time of renewal for either an updated appraisal; you might have to get your financials updated, and often pay fees in closing costs again in some cases. So, that's something to be very careful with as well.

How long should you take to repay a loan? And again, I'm in the church loan business, but our mission, at least at AG Financial, is to get money out to churches when they need it and help them get out of debt as quickly as they can. So, our recommendation is that you pay your debt off as quickly as possible, certainly not longer than 20 years, even though we can offer up to 30-year amortization on some loans. We encourage churches to pay them off as quickly as possible. You know, a 10-year goal, a seven-year would even be better if you can afford to do so. Obviously, an impediment to doing that are prepayment penalties, and we'd caution churches to watch out in their loan documents for prepayment penalties. You never want to sign a loan that would prevent you from paying off the loan more quickly. And then this…

Last point is is something you may not think about, and we run into this every once in a while. And while repaying a debt is a worthy goal and something we think is important, uh, that should never be at the expense of ministry. Uh, occasionally we'll meet with a church, and they're making double or triple payments on their loan because they're just so fixated on getting their debt paid off. And at the same time, you know, their parking lot may need repairs, or the the carpet in the lobby's all worn out. Uh, and because the board is so focused on getting the loan paid off, so you know, it's a worthy goal; it's an important goal, but it shouldn't shouldn't be at the expense of of other aspects of ministry for the church.

So my final advice, uh, on borrowing, just a few bullet points: just be careful with debt, like any tool that can be misused. Uh, be careful and not overextend the church in terms of uh, of debt, but also to understand that debt can be a useful tool for a growing ministry. Make sure everybody is on board, uh, that you don't have uh, any opposition to the project or your financing plan. Uh, obviously, make sure the project fits God's vision for your church, and again, that seems to be kind of a no-brainer, but it's amazing, as Sean was indicating, occasionally we'll work with a church; we find out that the vision that God has called them to, they're spending their money in a different way. And and so that's something you need to be careful of. If your focus is children's ministry, then then obviously you need to make sure that your children's ministry is top-notch, and that's where your capital funds are being expended. Invest as much cash as possible to limit the amount of debt the church is taken on. Phil is going to talk about that uh next. Accelerate payments as much as possible, and again, uh, make sure there's no impediments like prepayment penalties to keep you from doing so. You know, it really comes down to praying until you're sure that God is is with you, that you are moving forward with his will, and then step out in faith knowing that uh, he will help you, that he'll give direction, and he'll provide, not only to get the project completed but also to pay it off. And then lastly, and at this point it would be appropriate to turn it over to Phil, but obviously, uh, debt, as Sean indicated, is the last piece of the puzzle. We like to make the debt, the loan piece, as small as as possible, and a key way to doing that is to raise as much fun as as many funds as possible on the front end to limit the size of the resulting debt. And um, uh, Phil Dra is is next up; he'll be talking about stewardship initiatives to help you do that. Phil, yeah.

Well, thanks, Randy, and um, I just want to uh, just tag along with what you and Sean have been talking about. Uh, the I've worked with churches over the last many years now, helping them raise funds to see their vision come to reality. And um, the first thought that a lot of churches have is, oh, this is going to be a high-pressure thing, and really where we start is to look at the church's vision, and we just, it's so imperative that the church's vision be clearly defined. Um, any fuzziness in that vision, the church may have a great vision, but they just are not uh, articulating it as clearly as possible. We like to start there and just make sure that people understand the vision, because any fuzziness in that vision will translate into a reluctance to give. And so one of the things the church always has to answer is the question: is what will be different when this project is complete? And probably even more important with what we do is, what will be different as a result of my giving to this project? And so what we we ask churches to do is to focus on the vision and not the building. Let the building enhance what God has called you to do. Attach people's hearts basically to ministry and not to construction products, like sticks and bricks, things like that. Um, the approach is to focus on faith raising more than on fundraising, and most of us know that fundraisers can lose steam pretty quickly. Um, we can get people all excited, and uh, then quickly the the steam uh, we lose it. But if we see people's faith rise, as we call it a faith raiser, that is sustainable, and as they see ministry expand in the church, then they are more likely to continue to give. And of course, uh, in most of our stewardship initiative stewardship campaigns, we talk to people about making either a two or a three-year commitment or a pledge. And uh, completed buildings for two or three years, that it's pretty hard to sustain that if you ran it as a fundraiser, but you can always show them the lives that are being changed as a result of their giving. The number one reason that we can identify that people give is because they trust their leadership, and fundraising doesn't help uh, build any trust between people in the church and the leader, in particular the pastor. Now, a lot of times, U, it's good to do a short-term fundraiser, but for a large capital project, really it starts with trust. People need to know that the project is realistic. You don't want to show them that you're going to build the Taj Mahal if you certainly can't build the Taj Mahal. And then the other thing is your major givers, the people that are going to give big dollars to this, more than more than just a normal type gift, they need to know that you are able to complete this project. Uh, sometimes, hey, we're churches, and our default button is to hit the faith button, that well, God will provide, and and certainly God does provide, but uh, major givers, they're typically people that am successful in business; they want to know that they are investing in a winner, and uh, they certainly um, they they don't view uh, hoping and wishing as a strategy; they want to see that your strategy will bring this to completion. And so what it does brings you back to full circle, that rather than a uh, a fundraiser, we start with growing people in the grace of giving. This will help build trust in people rather than a fundraising scheme, and uh, over the long run, growing people in the grace of giving helps build trust and help sustain giving. And then we're almost always asked when I talk to a church, how should we time raising money for this project? And typically uh, we like to work with a church about four to six months prior to them asking people to make a pledge or a commitment. And so if a church was looking to to collect their pledges starting say in May of next year, we would want to start working with them anywhere between November of this year into the middle of January next year. That gives a lot of ramp-up time; the church doesn't feel stressed and pressured over the the process. And then the timing of when that money is raised relative to the whole building process, we like to see a church raise a third of their money during the plan planning stage, during the architecturals, the building permits. Sometimes some of that would be site work, but a third of it, that's the ideal time frame. And then a third of it be raised during the construction phase. So if it's a significant project, you you may have a year for construction; if it's a three-year giving period, you have a giving the first third uh, leading up to uh, the building, the second third during building, and then that leaves the last third to be raised after you're in the building and after the the new smell of the carpet starts to wear off, and there's not as much excitement as when you were building, that leaves the last third for there. And then a lot of times churches will say, well, hey, we're we're a couple years out; we're uh, uh, is there anything we can do now to position ourselves? And there certainly is. We believe that if you create the right culture, create a culture of generosity in the church, then generous people will thrive in that church, and it will be a normal thing; it will just be, it won't be unusual for them to respond in a capital stewardship campaign. And so we're working with a lot of churches now, sort of pre-campaign work, helping them just create and enhance this um, culture of generosity, and when they head into their campaign, they go into it with a tailwind rather than going into a headwind. And so then the question is, well, when should we start to talk about a campaign? To us as consultants, and I think the best time is to start whenever uh, you you believe you perceive that there's something on the horizon, whether that's six months away or five years away, start talking now so we can lay some foundational pieces so that when the time comes again that this is this is a natural process, people are ready, people are are willing rather than feeling like they um, they get U into a fundraiser that didn't truly come from the heart. So that would be my encouragement: if if you're anywhere in the process, uh, contact us, give us a call, shoot us an email, and we'd be glad to help you, glad to come out and talk to your church about what are the next steps you should take. Thanks. And Sean, I think you're gonna take it.

Yeah, wonderful job. What maximizing the benefits, and we're going to finish up with Sean right now. And just to mention, we are going to have a live Q&A session after Sean finishes this up. So if you have a question for the panel, please go ahead and type it into the question section of your GoToWebinar control panel. And um, as Sean finishes this up, we'll make sure to address all the questions we can. Sean, thanks very much, Andy, and thanks to uh, both Randy relative to loans and uh, Phil on uh, stewardship. Although these three areas—church construction, church loans, church stewardship uh, campaigns—are are all you three very different areas, um, there are things you can do to really maximize the benefit, and I like to use the term synergy that really can be created between the three of those. Uh, as we discussed, your church facilities should be an expression of your DNA, your vision, and your your mission. Still, the way that you would finance or or or fund your church project, same thing, that has to fit within the culture of your church and the the vision that God has given you and the mission, the the way you plan to implement that that vision. Um, and so easy to see with what both Randy and Phil discussed, uh, it's important to exercise stewardship with your facilities and with your finances. We talked about that a little bit early on in terms of looking at your immediate needs with your facilities, maximizing uh, the resources God has already given you in the way of buildings and land and square footage uh, etc., that that is good stewardship, uh, just the same way as uh, going to to to people and uh, really articulating God's vision and and giving them the opportunity to be blessed by participating in this financially, just in the same way that uh, the right uh, loan for your church is good stewardship and minimizing the interest that that you would end up paying.

The success of your construction project is critical to the success of your loan and your stewardship campaign. Uh, one of the the meanings behind that uh, is that especially relative to your loan, I'll I'll speak to first. Um, when you you sort of put this strategy together between your project, what that project is going to cost, uh, what you you feel like you can comfortably borrow uh, within your means and still maintain your ministry, uh, what you feel like the Lord is is leading you to be able to uh, to raise, um, the the the church project, the construction portion of this, the cost portion of that, if that gets off track, if that gets out of control, all of a sudden it really has an effect on the loan. You know, you need to borrow more, or you need to raise more, and and it and it really affects the momentum of the project. So very, very important that as we look toward the loan, as we look toward the campaign, we don't lose sight of keeping the project in the box that it's intended to stay in uh, financially and every other way. Um, so you know, in in closing, there, not to focus on the negative but to focus on the positive, a project where people can come to church every every Sunday and see the uh uh, the progress that has been made by the builders and contractors, that has a great, great effect uh, on what happens uh, within the campaign and repayment of the loan and and just the overall momentum uh, within the church toward fulfilling this vision that God has given you. And finally, with all these things, uh, construction can be looked at because it is a very, very practical, as as Phil mentioned, it's a bricks and sticks sort of a thing, um, but what we would like to remind you of and and and you know, thankfully many of our churches don't need reminding of this, but that is to seek and trust the Lord in the planning, construction, funding. Keep him part of this process all the way through, from the time that you originally uh, have this this idea uh, that you you perhaps need to buy a building or or remodel or add on or even change the the color of the paint or the carpet. Um, you know, seek the Lord's will in these things, make him part of of this entire project uh, from from beginning to end. And as we said here in this last bullet bullet point, this should be a journey in the spiritual, not just the natural. Uh, so that's just a word on taking all three of these and and uh, having those very, very intentionally and and very, very spiritually uh uh, work together to accomplish the the vision that God has given you. So with that, I think we're gonna entertain some questions.

All right, good job, guys. Hey, thanks for sharing your expertise. As Sean said, we are going to open it up now for live Q&A. If you do have a last-minute question to submit for our panel, go ahead and do that in the question section of your GoToWebinar control panel. We'll be able to get that and answer that immediately. We do have a few questions that have already been submitted, so we'll go ahead and start there, guys. The first one is, and Sean, this is probably one more for you, but what is the most cost-effective and durable material to build the exterior of the building? Cost-effective and durable? Good question. Um, unfortunately, there's probably not a straight across-the-board answer. Uh, it has a lot to do with a couple of things, one certainly being the uh, the the area, the country that you're in. Um, you have to consider in in areas up north that would be, you know, more susceptible to uh, the the winter elements, and then you know, other areas of the country where you know, like Arizona, Florida, New Mexico, some of the other more deserty areas, you know, the sun can do just as much damage to the structure of a building uh, as can wind, rain, and and and snow and every other element in in other areas. Uh, so one I would say certainly something that is somewhat indigenous to the area, the country that you're in. Um, secondly, the economics of it uh, really begin to play in when you look at the overall um, I'm going to say design of the structure, and and when I say that, I don't necessarily mean the look, the aesthetics as much as I do what we would what we might refer to as the superstructure: is this a is this a metal building? Is this a block building? Uh, is this a concrete tilt-up? Size of the of the building sometimes has a lot to do with that. Um, when you get into some custom additions, etc., sometimes you can't look at a prepackaged uh, building; you you have to simply start from zero and just kind of build that uh, with you know, concrete and and the custom framing. But typically the most cost-effective approach is a what I call an off-the-shelf building, and that that can mean a pre-manufactured metal building uh, that that you would go to a dealer and and purchase. Uh, that can be a concrete tilt-up. We find the concrete tilt-ups, at least lately in most areas of the country, those only really pencil out and make sense economically when it's a little bit of a larger structure. So the answer is, it depends. This is where in your due diligence, I just recommend that you talk with uh, as many local contractors as you can to get their feel for what's happening in that market.

Okay, Sean, appreciate that. And uh, the second question, and this is probably one more for Randy, uh, someone asked what is a balloon loan? Yeah, it's a it's a good question. I touched on that briefly, but it's probably good to expand on that. You know, I probably get a call once a week from a pastor looking for a 30-year fixed-rate loan like we have on our homes, and unfortunately, those those don't really exist for church loans. Churches are considered commercial properties, and so lenders are going to be financing them with commercial loans. There's really two major types that are out there if you kind of boil it all down. Um, most banks offer the most common, and what most banks offer is what's called the balloon note, which is what this question is is asking, and that's typically a interest rate provides an interest rate and a payment that's fixed for three or five years. The amortization period could be anywhere from 15 to to 20, 25 years, um, but at the end of that three-to-five-year period, the note actually balloons, matures; it comes due; it's payable. And at that point, the church typically sits down, goes back in, sits down with the bank; you bring in all your financials again. U, there may be a new appraisal, and candidly, the bank decides at that point if they want to renew your loan or not. Uh, most times they do, assuming the payment history has been good and the financials look good, but on on some occasions, a bank, for whatever reason, sometimes unfortunately completely out of the control of the church, a bank decides not to renew a loan, maybe if change of ownership, the new owners may not be interested in church financing as a as a a business. And so the church is left scrambling under that scenario to find replacement financing, uh, often then paying new fees, new closing costs to put a new loan in place. And for all those reasons, we're not big fans of uh, of balloon notes. At AG Financial, the alternative to that is what we offer, which is an adjustable-rate loan, which is a permanent loan, which means once you put it in place with AG Financial, it's there till you pay it off, uh, but the interest rate is subject to adjustment according to some SCH. SCH, we have several different products available. Uh, our most popular loan is a three-year adjustable-rate loan, which just means the interest rate is subject to adjustment every three years, uh, but unlike a balloon note, you uh, you we don't sit down with the church and and negotiate an extension; you just simply get a letter in the mail indicating what the new payment uh, interest rate payment will be, and and of course, we never we never contact a church and tell them we're not renewing their loan. Uh, basically, once you have a loan with that, at least with AG Financial, it's there until you pay it off. So that's a good description, I guess, uh, any of the difference between a balloon note and a uh, a permanent uh, adjustable-rate loan. That's good.

Thanks, Randy. Uh, we have a couple more questions. This next one, um, I I would just go ahead and open this up to the whole group uh, to get your opinion. The question is this: how close is too close to build another church geographically? So yeah, I think this is more geographically proximity. You know, I know here in Springfield, Missouri, I drive by this one area where a church just built uh, right across the street from another church, and it looks like it's literally like a showdown. So I can't wait on Sunday mornings, you know, to see what that looks like when they're all you know, staring each other down. But I think it's an interesting question; it's obviously very subjective, but would love to get uh, the panel's uh, opinion on that. Yeah, just some thoughts, and Phil and Sean may have some other thoughts. You know, churches are so personal and and appeal to different people. You know, I I don't know the proximity is a big issue. I mean, I think I've seen, and I think many of you've you've all seen uh, corners, you'll go in and see a street corner; they'll have three churches on it; they all seem to be successful and and uh and uh, you know, growing churches. So you know, I think churches appeal to different people; different churches appeal to different types of people. I think, you know, from a denominational standpoint, you know, that's certainly a consideration. I think a church, a pastor would want to be careful and at least within the AG, you're obviously going to want to coordinate proximity of churches with your with your local district to get advice and counsel on on that, but other than that, you know, I don't know that uh, at least I I don't know that it would be a major issue to to uh to drive your strategic planning. You know, I think I'd look more at where the people are located, and it gets back to like Sean was saying, the DNA of your church, who you're trying to reach, and if your focus is young families, then you need to be located in an area that's convenient and accessible to young families. And uh, I guess considering where other churches might be is, at least I wouldn't see that as a huge issue. But I don't, Sean or Phil, I one model that I would think of would be uh uh, restaurants. I mean, some of the most successful restaurants are all located in a in a uh, center where people they go there; they park their car, and they have their choice of many different restaurants. I mean, even even like a home and garden show, all of your competitors are there—all builders, landscapers—and they'll tell you they do a large percentage of their business when everybody's there together. I I think like you said, if it's not a denominational thing, to me, I don't see it to be a big concern.

I would probably agree with with both of you. Um, what I automatically think of is just throughout history, um, you know, decades ago, you would have certain denominations that would be more prevalent in certain areas of the country, and within that same same sort of era of time, um, we were a culture that uh, was was kind of more neighborhood-based, and so people would more walked to church, um, and they went to a certain church maybe because that was the church in their neighborhood, in their location. Uh, in our culture today of everybody has a car, um, in fact, it's it's interesting out out of out of all of the codes and the compliance and the hoops that we have to jump through to build churches, there's there's one code in particular that always stands out that is probably less restrictive than it really should be for churches, and that is parking. Most communities uh, only require um, one parking space for four seats in the building, and in today's mainstream church culture, it's actually about one for two and a half, so there's only about uh, 2.5 people uh, coming in a car uh, coming to church versus four in today's culture. So anyway, point being, in in today's culture of everybody having a car and driving wherever they go, they're gonna they're going to drive to church wherever in town. So yeah, I think bottom line, there there is not a a too close. The only the only other point that I think would be made there from from the perspective of a church looking for a new piece of property to build a church, it would not be of concern that there's a that there's a church right next door. What I would look at, however, would be the adequacy of that particular piece of property: can you not only build for your needs today on that property, but will that property be suitable to take care of your needs for tomorrow as well? That's where good master planning comes in. Uh, once again, parking is something to consider. There are

Many, many churches that we work with, uh, all the time—many churches across the country—are somewhat landlocked because they built within, in town, in neighborhoods, which is great, but they struggle to have room to expand. And so many of them, in order to expand, are forced to go way out of town, well outside, you know, different areas where they they have ever been located. Or they are forced to—very methodically, with a lot of churches that do this—very methodically begin buying up properties that, uh, that surround them in neighborhoods. So those would be the things I would look at more and be less concerned as to whether or not there's a church nearby.

Good answers, guys. We have time for one last question. We had a listener ask, "If I have a good idea of what our growth needs are, who do I go to first? Is it an architect, lender, etc.?"

Um, I would say definitely not an architect, unless, unless you have, uh, a relationship with someone who understands churches enough to really help you with the master planning of your project. Most architects, uh, the day you come to them and say, "Can you design me a church?" they will automatically say yes, very willingly. That's what they do. Architects design; they draw, uh, and that's and that's that's good, and there is a time and there is a place for that, uh, but what's more important is to talk with someone from a consulting basis, uh, that can help you—those of you that you know within the church that don't have this expertise—um, and so so the answer is architect maybe, uh, once again depending on their, uh, their expertise. If if they're if that's something that they do. And there are a number of design-build, um, firms across the country that do a lot of church work, and and some that even specialize in church work, and so they are they are very, very good at that pre-project planning and and, uh, the feasibility, walking a church through and helping them. Um, we, uh, here at AG Financial, we do that kind of work every day. Um, I'm not aware of another, uh, L denominationally or otherwise, uh, that has the, uh, the depth of expertise that we do, all all across the board here relative to loans, uh, stewardship, construction, to be able to assist churches strategically in walking through those things. So, um, not sure there's a clear answer, uh, other than to say, um, definitely get an answer, you know, in in your Lo in your location—your local—take a look at what resources you have around you, uh, and continue to search for that someone to help you answer that question prior to just letting an architect put a pencil to paper to design something.

And Sean, if I could expand on that really quickly, I think one of the biggest, um, things to discuss here is, uh, we have seen many churches that we've gone into help retroactively after speaking with an architect. And the architects that a lot of churches have used have done an amazing job at bringing this vision to life of what could a new sanctuary, a new church building, etc., look like, and they do their job really well. The issue is that they do not necessarily have, uh, maybe budget in mind or or like a dollar ceiling, things of that nature. And so they may build—and some churches actually build based on the plans without understanding what their budget looks like—and it goes back to what you guys have said earlier: understanding what you should and can, uh, get us from a financing or lending standpoint, what you can raise, what cash on hand do you have. And I think just to kind of bring it all full circle, it's a lot of what the guys, our panelists, have said today: really have that plan, understand what your budget is, and then go into having an idea of what you can build based on that. Nobody here wants to see a church build half of a building just to see it stop construction and become a train wreck because the right financing and the right planning was not done. Would you agree with that, Sean?

Absolutely. So I I think, you know, whether it's AG Financial or someone in your community, definitely good to get expertise, advice, um, on the right approach before putting things into motion.

Um, any other questions or comments? Great. Well, everybody, we appreciate all of you who have taken the time to participate and listen to today's webinar on church construction and financing. Great questions today; we appreciate that. It doesn't stop now, even though this webinar is about done, because if you do have any questions or comments for these guys, you're welcome to email us directly at info@agfinancial.org. Again, that's info@agfinancial.org. And I know that Sean, Randy, and Phil would welcome any questions you might have, so don't hesitate to contact us. Also, I invite you to stay tuned to the AG Financial website to learn more about upcoming webinars like this one and other live video seminars. We also have free white papers to download and blog posts that are centered around these kinds of topics that we're discussing in today, and you can find these resources at blog.agf financial.org, and those are all free for you. We at agfinancial, um, are excited to resource the local church, to resource you, uh, with the insights that we have, in any way that we can help you, uh, we are more than happy and excited to do that. Again, um, if you have any questions, comments, anything, you're welcome to email us at info@agf financial.org or call toll-free at 855 558 3900. God bless you all and have a great week.