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When the Bank Says No

Rejection is no fun under any circumstance. It can be especially disheartening for a church when a lender rejects its initial loan application for a capital construction project. But the first "no" does not necessarily doom your chances to finish the project. Your church can pursue another lender, adjust the project, improve its financial situation, or a combination of the three.

Lenders will refuse a church's loan proposal in more subtle ways than an outright "no." Instead, a lender might reduce the amount it is willing to offer. In other scenarios, the lender has more clear reasons for the rejection, and the unsuccessful church should ask for reasons why.

"Listen. As that lender is telling you no, they are really saying 'not that way' or 'not now' or 'not that much.' If you can hear them out, they will usually give you some clues about what to do next so that your future request might be approved," says David Van Winkle, vice president of sales for the Evangelical Christian Credit Union.

After a refusal, shop other banks to compare interest rates, loan programs, and financial requirements. The refusal could also be a cue to explore other sources, such as your denomination, grants, and bonding programs. If the first effort involved a lender that isn't familiar with churches, look for one that specializes in that market.

"Match up the loan you're seeking with the type of loan that particular institution makes. That can't be stressed enough," says Frank Sommerville, an attorney and CPA who specializes in helping nonprofit organizations.

Adjusting the project after a rejection is another practical option, says Brian McAuliffe, executive pastor for Willow Creek Community Church.

"Rethink the plan, rescale the plan, get creative about timing. Hold off until you can raise the cash or the economic factors change," he says.

The lender's refusal can be a motivator to do the hard work needed to strengthen the weak spots in your church's finances, too. Get a prescription for improvement from the prospective lender, follow it, and come back in a year to try again.

"The single most common prescription is slightly lower borrowing capacity and building size," says Dan Mikes, executive vice president of Bank of the West's church loan division. "Another common one, at least in the current environment, is to say, 'You're a little thin on cash.' You should have one to three months of expenses held in operating reserve."

The initial rejection can force your church to look harder at its ministry priorities. It can serve as a way to rally the congregation.

"You can tell the congregation that you believe in the project and feel God is on their side," McAuliffe says. "Of course it still has to fit a reasonable financial model. You just cannot do a project and say God will provide. That would be fiscally irresponsible."

—Lee A. Dean

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  • November 28, 2010

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