Rating Your Church’s Debt

Church debt can be a polarizing topic. Some are staunchly against it, viewing it as sin. While others are ok to engage some debt even though they would rather not. It feels necessary and practical. I have seen debt bind, divide, and kill a church. I have also seen it propel a ministry forward with unprecedented growth. So, I thought I would help provide some insights on the amount of debt a church could have and how that might affect leadership decisions. 

Debt Free Church – Many churches today do not possess debt. It might be a young church that does not own a building or property. It could also be an established church that has not built or accomplished a significant capital project in a long time. Being debt free doesn’t always equate with financial freedom or church health. Financial bondage along with a lack of community or global impact is still be very possible.

Debt One Time Annual Church Income – A church with this amount of debt is usually experiencing a good amount of financial freedom. The leadership is able to entertain a variety of questions like, do we try to pay the debt off fast, build cash reserves while we can, or possibly engage an expansion project of some kind? This debt load is very manageable and creates a season of possibility.

Debt Two-Three Times Annual Church Income – This amount usually means a church has recently completed a large scale project and is maximizing every budget dollar. It can feel tight for sure with a moderate amount of financial pressure. Paying down the debt should be escalated to a high priority. Resist the temptation to increase debt in this stage though high growth churches may feel like they do not have that option. Make sure you have solid cash reserves because expensive maintenance issues are right around the corner.

Debt Four+ Times Annual Church Income – This can feel very discouraging for a church leader. No doubt it is a heavy weight. I have seen more than one church in the 10x annual income range. This amount of debt is obviously not good. It usually is the result of something catastrophic like an unwise set of decisions by previous leaders, a church split, or a local economy that has tanked. The drive can be 100% toward paying off the debt which can actually be very shortsighted given the situation.

Here is some free debt advice for all of the above:

If your church is debt free, be bold. Please make sure you are aggressively moving the kingdom forward. You are in a very enviable position. Keep increasing your financial strength so you never have to depend upon debt, but advance the mission aggressively in your church, community, and around the globe. You have a very unique mission in resourcing the kingdom. Think big!

If your church has 1x annual income in debt, be strategic. You most likely have future needs that are very large. Do not rush to pay off the debt at the expense of building an overflow of cash reserves. You have worked hard to get to this place, but do not view debt free as the end goal. Take advantage of this season by creating an overflowing generous culture, by streamlining your ministry strategy, by increasing your leadership base, and by focusing your expenses. The more resources you free up now, the more likely you are to pay cash in the future, kissing debt goodbye forever. You are in a get ready stage!

If your church has debt 2-3x annual income, be cautious. Make reducing your debt a very high priority. You might be one bad weather day or large maintenance repair away from significant financial pressure. Get your team in the room, set a goal to reduce debt to 1x your annual income over the next few years. Leverage multiple services, maxing out your facility until you gain more financial bandwidth. Creativity with resources and schedules will be your friend.

If your church has debt 4x+ annual income, be patient. Your situation will not change overnight. Putting pressure on your people to give more to reduce principal usually will not result in month to month cash flow freedom because your debt payment requirements will most likely remain the same. Stay in great communication with your lender, hopefully you are current on your repayment plan. Focus on growing a generous culture. Prioritize increased ongoing income, create a strategy for above and beyond giving as well. This will help build undesignated cash reserves and fund specific growth initiatives given the lack of margin in your budget. Once these levels are safe, then you can accelerate debt payment. In extreme situations, you may need to take a radical step like selling property or renting your facility. Remember, be patient and not hasty with these decisions. The kingdom is still advancing despite your current predicament.

Be confident, I have seen God turn around the worst of situations. I have also seen church leaders lose perspective under the pressure, experiencing even greater loss. Every church ranks somewhere on the debt scale. Each has its own set of challenges and opportunities. Go unleash giving today.

Some think the next generation is giving less than generations before them. The reality is they are just giving in different ways. Download our free ebook Next Generation Giving is Here.