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How much debt can my church afford?

Churches generally use debt to fund capital projects or building expansions that enable them to grow and expand ministries. Assuming that your church has a surplus operating budget [spending less than taking in each month] and have a good financial history, our recommended guideline is to borrow no more than 3 times your annual general fund income and to not exceed a debt service ratio to income of 30%. In addition, we would want to see a healthy working capital reserve fund (3 months operating expenses) set aside and a substantial cash down payment on the project, in the range of 25 to 30%.   Of course, the financial lender will have final say in how much money can be borrowed for a project looking into things such as current budgets, past financial statements and loan to value on the project.

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