The church I attend has a problem—a good problem, but still a problem. We have run out of space and we’re landlocked. These issues have been the grist for leadership discussions.
Elder Bob: “We need to face the facts! We have four worship services on Sunday mornings. We’re parking cars bumper to bumper, but we still have to run a shuttle service to the public parking garage. And we’re renting space to hold Sunday school.”
Executive Pastor Jim: “Well, if we are facing the facts, then you all should be aware that we are beginning to see some real strain on the budget. We’ve added staff to meet our growing needs, but giving just isn’t keeping pace. The bulk of our giving this year won’t come in until the last few weeks of December. We could run out of cash by August.”
Elder John: “In my business we lined up a mortgage to finance the construction of a new facility and a line of credit from our bank to solve the cash flow problem. Maybe it’s time for our church to do the same!”
Elder Bill. “It may be alright to run your business that way, John, but I’m not convinced it’s the right way to run a church. I don’t believe in debt for my family—or for our church. God will provide.”
Elder Paul. “But Bill, couldn’t God use borrowing as a tool for his provision? Pastor, what do you think?”
When I served as both an elder and treasurer at our church, I found myself having to weigh in on the issue of borrowing. I am also a CPA with a Ph.D. in economics, and I teach business and economics at a Christian college.
I have found myself wondering about both the pervasiveness and effectiveness of borrowing as a tool for financing the local church. I have also wondered if there was any such thing as the “normal experience.” So I was very pleased to work with Leadership in trying to discover the impact borrowing has had on church life.
Leadership surveyed 1,000 pastors, with 41 percent return rate. The survey has yielded some helpful findings.
In short, we found that borrowing money can work, and most churches that borrow money have good results. But we also learned that debt must be handled with care, and the size of a church affects its attitude toward borrowing.
Borrowing works
Judging from this survey, the use of some form of debt is very common and overall a positive experience for churches. This is reflected in the data and in the comments offered by respondents:
“Debt can be a positive way to move a congregation toward accomplishing its goals and purposes.”
“Don’t be afraid of debt. Teach stewardship and trust your people and God.”
“Plan for it. A growing church must face debt as inevitable.”
With more than 400 churches responding, there is naturally a range of experience reported. But we discovered some interesting commonalities:
1. Borrowing is a normal experience for churches.
More than half (54%) of the churches in our survey currently had some level of indebtedness, but 84 percent said that they carried debt either currently or in the past.
Of churches surveyed with Sunday morning attendance of over 200, 62 percent had assumed debt since the current pastor came; for churches under 200 attendance, only 37 percent had assumed new debt. The smaller churches (with annual budgets of less than $100,000) were much more likely to be debt free (61%) than larger churches with budget of $500,000 or more (only 25% currently debt free).
How much do churches borrow and pay back? Churches can reasonably commit 10-15 percent of their operating budget to loan repayment and interest, according to our findings. (The average was 13%.) And among churches with debt, the median indebtedness is equivalent to about 64 percent of their annual operating budget.
This last year has been a difficult economic environment, yet 95 percent of churches were on time with their loan payments.
2. Churches experience positive results from borrowing.
The most common benefits relate to facilities. But many also reported increases in attendance and giving, church unity, extended outreach, and achievement of ministry goals. Some 58 percent reported their borrowing experience was without a negative result. Only 5 percent reported no benefit at all.
Larger churches (budgets over $500,000) were two-to-three times more likely to say they saw benefits in addition to their building projects. For example, 68 percent of larger churches reported increases in attendance, while only 33 percent of those with budgets less than $250,000 saw higher attendance. And 61 percent of these larger churches said overall giving increased, but only 27 percent of smaller churches.
It should be noted that churches in the middle range (budgets of $250,000 to $500,000) were more likely to renovate and repair existing facilities, while larger churches were more likely to purchase land (43%) and construct larger facilities (82%). That is probably a factor in the larger churches’ increased attendance.
3. When churches borrow, they usually do so for capital improvements rather than consumption.
Borrowing to fund current operations is inherently problematic. It is a sign of living beyond one’s means. Consumer debt fuels the engine of greed. Institutions are susceptible to this same temptation when they borrow to pay for ongoing ministry.
Borrowing for capital assets is different. There is something to show for the debt other than fleeting memories of yesterday’s consumption. Debt can fund the creation of assets that can themselves be used to create further value in the future. In times of distress, assets (unlike memories) can be sold with the proceeds used to pay off or pay down outstanding debt.
When churches in our survey borrowed, they overwhelmingly did so for capital projects, suggesting that there is general agreement on the use of debt to fund investments in assets rather than current operations.
Among the options listed as reasons to take on debt, building expansion was checked 61 percent of the time and land purchases were checked 34 percent of the time. (Respondents could check multiple reasons.) Things like special projects, ministry opportunities, purchasing multi-media technology or musical instruments were seldom used as reasons for taking on debt (4% or less). Only 3 percent of those using debt did so in order to meet operating expenses when cash was low.
More churches rely on bank loans (48%) than mortgages (28%), or loans from their denomination (21%), or bonds (10%). Mortgages and bonds held by both the church and public are used for larger loans. We found that smaller churches’ projects are more often funded by bank loans, while larger churches are more likely to issue bonds for their sizable projects. Only 3 percent issued public bonds, and the debt averaged $871,000.
Borrowing works, but it’s hard work
We received 225 responses to our question, “If you could offer one piece of advice to other churches about debt, what would it be?”
Almost 37 percent of these comments can be classified as advising other churches to be conservative, to exercise care, caution and constraint, or to seek other alternatives to debt if at all possible.
Another 6 percent advised against borrowing at all. These responses reflect the reality that debt is a burden.
We seldom hear the word “burden” today in reference to debt, but it once had wide use in business as a description of a loan.
Although the survey indicates many successful outcomes associated with church borrowing, there has also been some adversity. One-fifth of the churches reported significant stress on church leadership, with 8 percent of the pastors mentioning debt as leading to the departure of one or more church leaders. Financial hardship was experienced by 14 percent of the churches and 12 percent reported a decline in the support of missions.
For 10 percent of the churches, the debt became a divisive issue, with 2 percent of churches ultimately splitting over the issue.
Smaller churches with operating budgets of up to $100,000 were more likely to experience negative results.
We asked pastors whether they had ever been part of a church that failed to repay a loan. Only 2 percent answered yes. It may be rare that a ship sinks, but if you happen to be on that ship, the results are disastrous.
Things that surprised us
1. Very few churches have a formal policy against borrowing.
Only 6 percent of the churches, more smaller than larger, said they had a policy against borrowing for reasons of financial prudence. Another 3 percent had a policy against borrowing based on biblical grounds. Given the rhetoric on the issue and that overextended consumer credit is such a widespread and difficult problem, we expected to find more formal policies against debt.
2. Size is a significant factor influencing capital fundraising techniques.
Some techniques were reported to be more effective than others. In large churches givers seem to relate more to vision; while in smaller churches, givers seem to be motivated more by their fellow members.
Approaching lead givers and making home visits were rated much more effective in smaller and medium-size congregations (budgets under $500,000) than in larger congregations. Larger congregations reported greater effectiveness when the capital project was tied to the mission statement. They also favored special events (such as campaign banquets) more than the smaller congregations.
Only 29 percent of the churches reported using a fundraising consultant. However, slightly more than half (53%) of large churches hired one. Of the churches that did hire a consultant, 62 percent found it to be more effective than not, with about one-fifth reporting the outside consultant’s help to be very effective.
In a world full of specialization, we were surprised a bit by the fact that smaller churches generally did not use a consultant. We also expected that larger churches would be more likely to have the expertise within the church and therefore not use a consultant. The opposite was true in both cases, which may be another reason why larger churches more willingly tackle larger fundraising projects and smaller churches are more likely to report negative impact from their money-borrowing projects.
3. Many pastors wonder, Could we have done more?
One-fourth of all pastors reported after the project was over, they wished they had set a more ambitious goal. The percentage is even higher for smaller and mid-size churches. For churches with an operating budget of $100,000 to $500,000, 35 percent of pastors thought they could have reached a bigger goal, even if it meant assuming a larger debt for a while.
The cowboy parable
When I am asked to address the issue of borrowing, I often share this story reported in a small town newspaper in eastern Montana around 1920:
Jake was a cowboy. His livelihood came from raising cattle in the vast grasslands of eastern Montana. He could ride and rope with the best of them, but even under the best of circumstances, being a cowboy is hard work. It has its share of dangers as well. Jake found out first hand.
He was driving a herd of cattle across the open range when one of the cattle cut away. With one swift movement, Jake both grabbed his rope from its cinch and spurred his horse into a full gallop in pursuit of the stray. The sea of grass and the flat horizons of eastern Montana belie the irregularity of the terrain. In addition to the isolated buttes that stick out like warts on the landscape, there are deep and sudden ravines. The land is also pitted with prairie dog holes. It was one of these that caused Jake’s horse to stumble, hurling both horse and rider to the ground.
The angle and force of the fall broke the neck of Jake’s horse and it died instantly. Jake’s immediate fortune was better. He was alive, although he found himself trapped underneath his dead horse, unable to move under its weight.
Jake tried for hours to dig out enough space from under the dead animal to pull himself free, but hard rock lies below the thin Montana topsoil. The cowboy could not dig himself free.
Jake was able to reach his rope. Maybe it would serve as his lifeline as well. He scanned the ground around him for a possible solution. It would take a good throw and some luck as well, but if he could just rope a tree or large rock, he might move the horse away with the aid of a Spanish windlass—a winch created by a lever twisting a loop of rope. The Spanish windlass has served many a cowboy, but it failed Jake this day and he remained trapped.
Finally, Jake pulled out his jackknife. He propped himself on an elbow and proceeded to eviscerate the horse as best as he could. If only he could lighten the load, maybe he could extricate himself. It was a desperate measure, but it was Jake’s last resort. It, too, failed.
There was nothing left for the cowboy to do but lie back, pull his hat over his face, and wait for the end.
There were no witnesses per se, but the facts were all there, preserved in the dust of the ground and retold by the rope, the winch, the horse, and the knife.
There’s a moral to this story that is helpful in understanding debt. But first let me address what I don’t think it says.
If the horse represents debt, it would be a mistake to conclude that cowboys should never ride horses. The horse is a tremendous help to the cowboy and it is hard to imagine that his work could be accomplished without the aid of his horse. But as useful as that horse may be, it is not always safe.
Debt, like that horse, can be enormously helpful in accomplishing some important things. But as Jake learned, the unexpected can happen and when it does, the result can be tragic.
Should we ride a pony named “Debt”?
The survey shows that most churches, at some point, will mount up. When they do, will they be saddled by the debt or ride it to greater ministry? Much of the outcome depends on attitude.
When your church faces this issue, think A-B-C.
Advance: The church will never win the world by retreating or maintaining the status quo. Borrowing can be a productive tool for moving forward.
Burden: Debt is a burden. Carrying excessive weight can slow you down and even stop you dead in your tracks. But working with incrementally larger weights can make you stronger, improve your health, and in the long run allow you to do more.
Care: When you borrow, exercise care. Remember that Montana cowboy. If you have never ridden a horse, it would be foolish to mount a large, spirited animal and ride full speed over the grasslands. You should probably start with a tamer pony and work your way up.
The same is true for a congregation. It takes a healthy body to bear this burden, but when it does, great work can be done for Christ and his kingdom.
To order the complete Research Report on Church Debt, on which this article is based, visit www.BuildingChurchLeaders.com and click on Church Research.
— Bruce Howard is professor of business and economics at Wheaton College in Wheaton, Illinois.
Copyright © 2002 by the author or Christianity Today/Leadership Journal. Click here for reprint information on Leadership Journal.
