our 30-day delinquency rate was only 2 percent. Steve Hron: Property values have been one of the biggest challenges since 2008 for churches, as well. Good loans are still getting done just like they were pre-recession; but, property valuations just aren’t always there. It’s requiring churches to put more cash into projects, which was challenging for some ministries during the recent recession. In tough times, if you have some cash reserves to fall back on, you have more runway time to adapt, to change ministry focus, to do some things differently or direct that cash into a project or renovation. For example, in our database of existing clients, the median of cash reserves is about 60 days. The 25-percent quartile has about 30 days’ of cash reserves. So, having a rainy day fund is easy for us to recommend, but sometimes not as easy for churches to execute. Another challenge for churches is that industry lenders have been forced to tweak some of the metrics. In 2006 and 2007, some lenders were loaning four, five and even six times a church’s gross support and revenue. (They aren’t around anymore, so that issue has kind of taken care of itself.) Coming out of this recession, lenders are focused
William Scrivens: The lenders that deal with our core business are seeing a much stronger emphasis on cash reserves. They’re asking, “How much money do you have set aside to take care of the assets you already own and are responsible for — before we start giving you extra money for whatever you want to do into the future?” Even HUD is changing its regulations. Before this recession, an individual got the loan. Now, HUD is look at whole communities to ensure capital assets are adequately funded. There’s some spillover there into the church world. Lenders are saying, “You want to build this new complex, but the front of your building is falling off because you haven’t taken care of it for 30 years. That makes you a higher risk.” A conservative approach was mentioned earlier — where a church has adequate reserves and is practicing stewardship by maintaining what it owns. Then, if it wants to expand, maybe a loan is appropriate. I think there’s a drift away from evangelizing an immediate need to build toward an acknowledgement of the responsibility to care for what they already have. I think the whole country learned, to a degree, that you can’t just borrow, borrow, borrow; you have to be
Paul Weers (left) and James R. Cook (right) (MMBB Financial Services)
Left to right: William Scrivens (Miller Dodson Associates, Inc.); Steve Hron (Ziegler); Dan Mikes (Bank of the West)
on more normalized leveraged metrics — maybe three, three-and-a-half or four times maximum gross support and revenue. Lastly, like Bank of the West, we like to take the conservative approach. If a church is considering a building project, a property acquisition or otherwise, we ask, ‘What kind of cash flow is available to pay for the proposed loan?’ We’re all about looking over the dashboard at the growth of the church. But, if we can look at the church’s financial statements now, and validate that the cash flow is there to service the debt, that’s a good, conservative approach.
more conservative. And, churches have a moral responsibility to actually lead in that sense, in how they manage their facilities. Steve Hron: Again, declining property values are requiring churches to bring more cash into the financing equation. Where do they get more cash? Well, maybe from a capital campaign. But, when is the right time to do one? How to they approach that? If a church isn’t accessing more cash through a capital campaign, then it’s through savings or the general fund. There just hasn’t been much ability [in the past >> 08-09/2013 || Church Church executive executive || 23 23 08-09/2013