Independent Banker - August 2021 - 58

consistently gratified from people
saying they know about us because
of the connections formed through
the faith-based organizations they're
part of. "
Evaluating creditworthiness
Success in lending to faith-based
organizations starts the same way as
it does with any other kind of loan:
with a careful examination of the
customer's finances.
For example, Carver State Bank
evaluates three years of financial
statements of churches that are
seeking loans, James says. That
includes a cash flow analysis to
ensure the church can handle the
loan payments.
" With a nonprofit institution,
especially a church, you want to look
at the consistency of their giving, "
James says. " We want to see what
the normal tithes and offerings the
church has. "
Williams says M&F Bank looks at
trends in a church's " giving units, "
meaning households that donate. A
broad base of givers implies that a
church's offerings will be consistent
over time; in contrast, a large
percentage of the church's revenue
coming from just a small number of
givers represents a risky situation.
But after those basics, examining a
church's application veers into some
territory that is different from a
regular business. For example, while
a community bank is concerned
about the leadership of any business
it lends to, the strength and
longevity of a pastor is especially
important when considering a loan
to their organization.
For example, James says a
successful pastor can inspire giving.
" The biblical requirement of tithing
works for some older members of
churches and the people who are
really committed to the institution,
but others are inspired to give based
on the quality of the leadership, "
he adds.
While they may inspire increased
" We've seen several
organizations recover
using their own particular
fundraising tactics, such as
special fundraisers or revival
celebrations, to liquidate
their debt. "
-ROBERT E. JAMES, CARVER STATE BANK
donations, a religious leader may also
pose a potential financial risk for the
lender. " The big difference between
lending to the church and other
businesses is that it's really a leap
of faith regarding the personnel, "
says Scott McComb, chairman,
president and CEO of $1.6 billionasset
Heartland Bank in Whitehall,
Ohio, " because if something happens
to the main pastor, things can go
awry quickly. "
McComb says the pastor of a
church client had an affair within the
organization, which caused half of
its parishioners to leave. Suddenly,
the church couldn't make its
mortgage payments.
In another case, a church's
longtime pastor retired and his
replacement was not as successful.
Membership dropped from 1,200
parishioners to 200, and the group
could no longer service its debt.
Naturally, it's hard to predict those
types of occurrences. But a church
should have a succession plan to
deal with that possibility, Williams
says. And having a competent church
board of directors can decrease the
likelihood of leadership turnover.
58 Q ICBA Independent Banker Q August 2021
Churches that are part of major
denominations and have regional
organizations above them generally
have a more secure leadership
situation, McComb says.
" If you're part of a denomination,
that's a plus, because generally
the district office has some
wherewithal to control the situation
in their branch churches, " he says.
" Sometimes, they'll send in an
interim pastor if things get sideways
to straighten things out. "
Another potential difference
between evaluating a typical
business loan application and a
church's application is the value
of the collateral. Whereas a retail
storefront, warehouse or office
building could be sold to settle a
secured mortgage, selling a church
building can be more difficult.
" Don't hang your hat on the
collateral, " Williams says. " Most
churches are specialized buildings,
so they're only marketable to a finite
group of individuals. "
Risks of faith-based lending
Sometimes faith-based organizations
run into problems and cannot repay
Independent Banker - August 2021

Table of Contents for the Digital Edition of Independent Banker - August 2021
