churchbuildingIn this tight economy, it has become increasingly difficult for congregations to finance needed building improvements. Are you considering external financing from a local lender or from the UUA to help finance a building project? Because financing can be fraught with peril, I offer the following guidance.

Each congregation has its level of financial comfort. Some are comfortable with a relatively high amount of debt, while others are comfortable only if they are debt-free.

Most lenders, including the Unitarian Universalist Association, consider that some level of debt is healthy and can help a congregation to fulfill its mission. Here are three guidelines for determining an appropriate amount of debt:

  • Be sure that annual debt service does not exceed 25 percent of the congregation’s annual operating budget. 25percentThe Unitarian Universalist Association does not even consider a loan or loan guarantee request if the annual debt service exceeds this level. The concern is not whether the congregation can service its debt; the concern is that the congregation may focus too much attention on making loan payments rather than on fulfilling its mission.
  • Keep the total project cost within two to three times the annual budget total.
  • Keep the total project cost to a maximum of 50 percent of the total property appraisal (when the project has been completed).

Historically, some congregational leaders have suggested funding a building project by making a deposit of 10 percent, with the remaining 90 percent to be carried with a mortgage. Here is the argument that they often use: The new building will attract visitors who will soon become members, and these new members will make substantial annual financial commitments to help make mortgage payments.

This “build it and they will come” model is not reliable. Until new congregants feel included in congregational life, they seldom make significant financial commitments. Rather than helping to increase financial stability, their financial commitments often do not even provide the money needed to support programs and ministries.

If external financing is proposed as a way to help pay for a building project, develop financial projections to show how the mortgage fits into the entire financial picture. Then the congregation can make an informed decision about whether or not to accept external financing.

About the Author
Wayne Clark


  1. Kenneth Schug

    Question concerning second guidline: should income from space rental and from loans be included as part of the budget total as the starting place for the “two to three times ther annual budget” guideline? In our church the total annual income is about $546K of which $129K comes from space rental and $41K from a loan. Should we base our fundraising goal on $546K – $128K -$41K = $376K or a higher number?

  2. Wayne Clark

    Ken — Thanks for your inquiry. Conventional wisdom says that the total cost of a congregation’s building project should be in the neighborhood of 2 to 3-times your total annual budget, regardless of the source of income. In your case, the guideline includes your rental income. If your $41K loan is being used to balance your annual budget, then that amount should be included as well.

    On the other hand, setting a realistic capital campaign goal is a bit different. You could set an early-in-the-process goal of raising 3-times annual giving (excluding rental and loan income in your case). Far more often than not, the cost of a building project exceeds the amount of money raised by the congregation. In this case, congregations often seek financing (usually from a local bank or from the UUA) to make up the difference.

    Please note my use of “early-in-the-process.” An accurate fundraising goal can best be determined with a financial feasibility study, conducted by an external consultant. If you would like some information about a feasibility study, please send me an e-mail and I will send you a one-page overview of the process.



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