In 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. The 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).