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Facing a Financial Crisis: Three Experts Weigh In

A headline I read earlier this week from the newswire service United Press International gave me pause: “More Churches Face Foreclosure.” Upon reading the piece, I quickly understood why: While the rate of foreclosed church properties continues to climb, thanks partly to some widely publicized defaults in Naples, Florida, and Temple Hills, Maryland, among others, the overall number remains small.

As the article points out:

“The scope of the problem is difficult to measure. Most of America’s 335,000 churches are well established, building costs paid off long ago. The situation among a minority of congregations, however, is certainly worse than it was last March, when the New York Times found that 0.31 percent of the 82,441 churches it studied were facing foreclosure.”

Not many can say 2009 delivered a banner year, but these types of headlines suggest a widespread financial problem among churches, which just isn’t the case. (As Dan Mikes from Bank of the West pointed out to me, his division has $1.3 billion in direct church loan exposure “without a single delinquency, loss, or foreclosure.”)

Nevertheless, these headlines remind me that some churches are struggling with how to make a mortgage payment. To help, we asked three lenders to tell us what churches facing a financial crisis should do if they aren’t able to make mortgage payments. Here are their responses.

Henry Chi, vice president, Evangelical Christian Credit Union’s ministry development group:

1. Evaluate your ministry priorities in light of the present situation. Based on those priorities, review your programs and budget, then reallocate financial resources, cut expenses, and, if necessary, cut programs that don’t align with your priorities so that you can meet your mortgage obligations and still stay on mission. Circumstances like this can be a catalyst for thinking more strategically.

2. Communicate with your lender. Inform them of the actions you’re taking, find out if there are ways to restructure your banking accounts to reduce fees and increase returns, and ask if they’ll work with you to modify your loan so that you can make it through this difficult time.

3. Evaluate your financial management. Beyond looking at expenses and banking practices, review your cash management policies and procedures to be sure funds are being handled well and wisely. We recommend doing so through a grid of ministry banking priorities that examine cash flow, liquidity, and stewardship of other ministry assets, such as real estate and personnel.

Finally, in the spirit of prevention, ministries that are still able to make their mortgage payments should monitor the impact of the economy on their community and congregation, and develop forecasts that will enable them to make proactive decisions to prevent this kind of financial crisis.

Dan Mikes, executive vice president and manager, Bank of the West’s Church & Educational Institution Banking Division:

1. Implement a policy of monthly board meetings for the foreseeable future. The primary focus should be review and analysis of year-to-date actual contributions and budget performance. The most common mistake we are seeing is over optimism and procrastination in making tough and timely expense reduction decisions.

2. Don’t lose sight of the big picture. If you lose your building, your credibility with your donor base will be severely or terminally damaged. You may not survive to provide any level of ministry. Therefore, begin by targeting expense reductions that have little to no impact on revenue flows, such as television and radio efforts, foreign endeavors, and so on. These are hard decisions, but they hopefully will only need to be temporary.

3. We are seeing churches reduce salaries, replace some staff positions with volunteers, increase the employee’s share of benefits costs, and reduce or eliminate honorariums.

4. Talk to the lender early and often. Don’t wait until you can’t make your payment to contact them. Have a comprehensive dialogue, including expense cuts made to date, additional planned cuts, board involvement, and plans to contact key donors. The board should also know, and discuss with the bank, the collateral value, and the possibility of marketing the church property and salvaging equity prior to foreclosure. This assures the lender that the church leadership is looking at all scenarios. Lenders will be more willing to work with a borrower when they can see a good management team is fully engaged and communicating.

J. Scott Reitsma, senior vice president, Christian Community Credit Union- Ministry Development Group:

The Three “A’s”—a checklist for financially challenged churches:

• Make a “brutally honest” assessment of what you owe/own.

Evaluate all historic sources of income: Ordinary tithes and offerings, special/designated or capital campaigns, school income, planned giving/bequests, or other (less common) sources, such as rental income from church properties. These might include your reviewing all records demonstrating such things as declining trends in income or attendance. Also, take inventory of all church assets: Bank accounts (both operating and savings), brokerage accounts (even if designated), real property, vehicles, audio/visual equipment and other personal property (meaning non-real estate). Now, decide if you will keep all of your prior commitments in a God-honoring way and in the appropriate priority. If your answer is yes, then you must pledge that ALL church assets will become available to resolve the current financial distress.

• Make a “brutally honest” analysis of your ministry model.

Review all expense categories and consider expense reduction in all discretionary line items. Re-evaluate every ministry program’s “value proposition.” In other words, look at your ministry’s “cost of delivery.” In this analysis you must make the toughest choices immediately because it will not become easier, particularly with regard to staff reductions that may become necessary. Evaluate your utilization of the church’s facilities, land, and other assets. Are all available building areas fully used? Have you considered sharing (renting) your facility with other churches? Perhaps you need to consider selling under-used portions of your property, if possible. Shedding excess land, buildings, or other under-utilized assets may be a difficult, but critical, step in your financial recovery.

• Make a “brutally honest” announcement to your congregation.

The most effective financial recovery step that any church can undertake can very often be the most frequently overlooked because it sounds too obvious. Why not allow your congregation to make a “fully informed” decision about their participation in resolving the financial situation of the church? Let’s be careful that we do not deny the congregant the opportunity to engage in ministry in a very meaningful way. There is nothing more heartening (and faith confirming) than watching God’s Spirit miraculously move within a congregation in situations like these. Very often, these congregationally initiated financial “turn-around” stories provide the powerful testimonies that produce dramatic impact in our communities.

If you have done the above, then approach your lender with absolute transparency, disclosing every fact, situation, and circumstance that you believe has contributed to your financial hardship. Then, detail (document) every step, measure or strategy you have undertaken to remediate your own financial hardship. Remember that your lender (if they are a regulated financial institution) has much more flexibility if you are current on your obligations. Your lender’s options diminish dramatically once you are in default. Nevertheless, your lender is certain to expect that you have done the entire process above prior to approaching them about providing any assistance in your financial recovery.

Other Resources

• The Essential Guide to Church Finances
• The 2010-2011 Compensation Handbook for Church Staff
• Your Church Executive Report: "2009 Church Budget Priorities"
• “When Layoffs Loom,” (May/June 2009 Your Church)
• “Budget Bullseye,” (July/August 2009 Your Church)
• “Asking for Big Gifts,” (September/October 2009 Your Church)
• Audio interview with Brian Kluth on building a culture of generosity in your church
• BuildingForMinistry.com’s "2009 Church Facilities Expansion Survey"

Matt Branaugh is director of editorial for Christianity Today International's Administration Team. He also is editor of Your Church, a magazine that covers legal, financial, administrative, facility, and safety issues for church leaders, and TheYourChurchBlog.com.

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Posted by Matt Branaugh on October 22, 2009 4:25 PM

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