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Loan vs. Cash- Church Construction Project

Updated: May 4


Throughout the year we meet with several Churches to discuss their upcoming construction project. About half ask the question or have the desire to pay cash and may even refuse to consider going into debt. But is that really a good consideration for the Church?


Unfortunately, there is not a clear yes or no for every congregation but there are some major factors that can weigh into the decision-making process. For instance, Church size, budget, current debt, and project cost are all issues that must be analyzed against this decision. A key consideration is inflation vs interest rate. Over the past several years (excluding the recent COVID-19 Pandemic), the inflation costs of construction out paced interest rates provided by lending institutions. Typical interest rates have fluctuated between 5%- 5.75% while the inflation costs in the construction industry is in the 7%-10% range. In other words, each year you choose to not build, the cost of your project increases 7%-10%. Therefore, a 1-million-dollar development will actually cost you 1.3 million for the same project, if you wait 3 years to fund raise the cash. This would result in more money needing to be raised resulting in more time, which is more money……However, if the loan was obtained early, the project would be started and finished in possibly a year allowing the Church to utilize the facility while paying down a note with interest less than inflation (saving 2%-5%).


Here is an Example:

We served a Church in the North Houston area that was looking to do a 560K project. Initially, the thought was to raise the cash and then move forward with the project full steam ahead. Especially since they were debt free and had been for about 10 years. In preparation, the Church started a Capital Campaign that would last 3 years. The Church pledged about 530K. Rather than waiting 3 years, the Church researched a few lending institutions and selected one that appeared to be the best fit. This allowed them to start the project knowing the loan would be paid off in about 3-4 years. If the Church chose to wait and fund raise, they would have 530K cash on hand, but the project would have cost nearly 700K at this time.


Like I said, this approach will NOT work in every situation and several factors must be considered. If Church debt is too high, the project size, cash could be raise in less than 14 months….ect. are some aspects that have an affect on this decision. Ultimately, fear and believing debt is strictly wrong can and should not be the only considerations. Because avoiding the debt may be worse stewardship than taking out the loan.


We would be happy to navigate these waters with you and help determine a game plan that meets the needs of your Church specifically.

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