How to Look at Debt Part I: It is a Burden

A large church expansion project is no joke. Many of our clients take on financial obligations worth millions of dollars.

But “debt” can be a dirty word in church circles. After all, many churches have embraced and promoted financial management advice from the likes of Dave Ramsey, who insists that “debt is dumb” and everyone who carries it is essentially “a slave.”

Of course, not everyone agrees with Dave Ramsey. But the question deserves attention: how should church leaders conceive of and explain debt to their congregations? What is the proper view of debt—a view that’s practical, wise, strategic and God-honoring?

Before we answer that, a caveat: It isn’t our purpose here to address the issue of personal debt. We’re talking specifically about the collective debt assumed by a church-wide community undergoing a capital building or renovation project.

In these cases, our role is to coach church leaders through their financing decisions. Each project is unique and so the particular advice we give varies. But two general principles always apply:

1. Debt is a BURDEN.

2. Debt is a RESOURCE.

These principles may seem at first glance to be opposites. But both are equally true, and it’s important that church leaders recognize that to avoid an overly simplistic view of debt.

In this blog, we’ll discuss the burden of debt and how churches should approach it. In our next blog, we’ll discuss debt as a resource.

Churches should understand the full implications of the debt they accrue and take them seriously. First of all, borrowing money is a responsibility over time—a long-term commitment by the community. Second, borrowing money costs money. To hold interest totals to a minimum, churches should seek to pay off their loans as soon as possible. That requires strict planning and fiscal policies. So church leaders should plan carefully how they’ll deploy these policies.

Another consideration is the percentage of total project costs that a church needs to borrow. Most lenders today allow up to an 80-percent loan to value or loan to cost ratio. Leaders should think about current properties and budget, and whether ongoing debt service at a particular rate will cut into the church’s “buffer” capacity in case something unexpected happens.

In other words, a church should be reasonably able to weather anything that comes its way. It’s not wise to play too close to the line in that regard—a church that cannot pay its bills due to unwise financial management or overdone debt is not representing God, its leaders or attendees well.

All of that said, debt need not make slaves of those who carry it. The key for any church is to carefully identify a workable amount of debt, and then create policies to manage it wisely.

-How much will this loan cost us, including interest and fees?

-What is a feasible payoff timeframe?

-What are the risks?

-Is it reasonable to expect increased revenues due to expansion?

-How much does the church plan to save?

-What percentage of our total costs are we borrowing?

-Will we receive any benefit, such as the sale of old property, when the project is complete?

-Will debt service cut into our buffer and create a problem if our budget experiences an unexpected downturn?