To read Part One, Click here

Consider the Bank's Experience And Philosophy Regarding Churches
A pastor should seek a bank and a lending officer with interest and experience in developing church banking relationships. Often, other pastors and community leaders can help determine which banks are the most receptive to developing relationships with churches.

Although the financial aspect of a church has similarities to other small businesses, a qualified banker will understand some of the key differences. A church's financial goals are contrary to typical business goals of seeking to yield a profit and to accumulate wealth for the owner of the business.

Additionally, bankers who are experienced in church lending understand that the church as a whole is accepting liability for any debts incurred, rather than any one person. Thus, a bank will usually not ask a pastor to personally guarantee the debts of the church as it would a business owner.

In identifying the bank that will best fit a church's needs, it is important to determine the bank's philosophy regarding the terms of loans made to churches. For example, determine what size down payment a banker might expect, interest-rate ranges, and repayment structures.

It is also important, particularly for a new pastor and/or a fairly new church, to determine if a bank is comfortable in dealing with churches without a financial "track record." Because bankers use the financial history of a business to determine its ability to repay a loan, some banks are uncomfortable doing business with churches that are newly established.

The Size of the Bank is Important
It is critical that a pastor select a bank large enough to meet his future needs but small enough to regard him as an important customer.

Many pastors have spent years developing a comfortable working relationship with a lending officer, only to discover that the bank is not large enough to lend him the money necessary for a new building. The other extreme is selecting a bank where the church relationship is considered by the officer to be insignificant, which may affect the level of personalized service extended.

An effective way to determine if your bank is too small for a church's needs is to ask the officer about the bank's legal lending limit. This is the largest amount by law that the bank could lend to a single customer. Most churches benefit the most by doing business with a bank that has a legal lending limit of at least one million dollars.

There are other disadvantages of banking with an institution that is too small. The expertise of the lending staff may be limited in a small bank where bankers often tend to be generalists rather than specialists. Additionally, smaller banks may not offer the range of services that is available at a larger bank.

Banks that are "too large" may not be responsive to the needs of a smaller customer and may not provide the level of service that most pastors expect. If a bank is owned by a multibank holding company, bank ownership may be out of touch with the needs of the local community.

The Bank's Attitude Toward Providing Convenient, Quality Service
Bank customers want a banker who is attuned to their needs and is willing to provide a high level of customer service. Pastors should seek a bank where quality service is emphasized — from returning phone calls promptly to responding in a reasonable time to a loan request.

If convenience is an important issue to a church, consider banks that have locations that are easy to use, drive-through services, and operating hours that meet your needs.

Cultivating the Relationship With Your Banker
Develop consistent communication with your banker. In developing a beneficial banking relationship, it is critical for a pastor to seek ways for his banker to better understand his needs. A very effective way to do this is by regularly informing him of the church's financial progress. Bankers are generally uncomfortable with surprises, particularly when it entails a major financial requirement.

Because a banker is a partner in a sense, keep him informed with a monthly or quarterly visit, whether you need anything or not. In a banking relationship, familiarity breeds success. A banker will be more receptive to the financial needs of your church when he has already developed a basic understanding of your unique financial situation. Regular visits will help to develop a strong relationship, including mutual trust between pastor and banker.

Keep Accurate Records From the Day the Church Is Established
An accurate financial history will better enable a banker to make sound judgments about a church's financial situation. Most pastors do not have the expertise or the time to oversee all the internal recordkeeping of a church. Therefore, it's a good idea for a pastor to invest in hiring a good accountant who understands recordkeeping for non-profit entities and to rely on his knowledge.

When visiting your banker, occasionally invite the accountant to accompany you. This will let the banker know that you are serious about recordkeeping.

Understand the Lending Officer's Level Of Competency and Authority
Your expectations of a banking relationship will be much more realistic if you are aware of the limitations of your lending officer. Understanding the officer's position in the chain of command at his bank will help you anticipate the amount of additional approval that may be necessary for your request.

You may find that although the bank is open to and knowledgeable about church relationships, your officer needs more information because of limited experience. If you have a relationship of mutual trust with a bank officer, it may be worth extra effort to make him comfortable with your particular needs.

When Visiting, Adapt To the Banker's Environment
Because pastors sometimes operate in a more casual environment surrounded by like-minded Christians, they can overlook the importance of adapting to the banker's environment.

Bankers typically dress conservatively and portray a highly professional image. When a pastor is in the banker's environment, he should adapt to this professionalism by dressing in a conservative business suit. Even subconsciously, a banker will perceive that a church's finances are in order if he sees a pastor with a polished appearance and demeanor.

Financial Planning for Churches
Practice prudent planning from the time the church is established. Even before the first service is held in a new church, the pastor should develop both short-term and long-term financial plans. Short-term plans include immediate obligations and purchases planned within the next 12 months. Long-term plans include major purchases and plans for future expansion. Both types of planning are critical if churches are to be prudent stewards of their financial assets.

Goal-setting is an important part of any planning process. Just as churches set goals for membership growth, they should lay out specific objectives for accumulating cash reserves. As well as encouraging discipline in spending, these accomplished goals can serve as a basis for a "building program" long before it is really needed.

As the church grows and receipts increase, a pastor should take care not to allow expenses to increase until necessary. Many churches fail to accumulate cash reserves because they begin to match expenses to offerings collected. Exercising restraint in spending allows churches to better meet their goals and use their dollars more wisely.

Build a Credit History With Your Bank for Future Needs
It may seem contradictory to discuss borrowing from a bank rather than spending cash accumulated by careful planning. But in our credit-oriented society, churches should seek opportunities to establish a good payment record for small purchases so that banks and other creditors will have a positive history for larger purchases.

Therefore, whenever possible, you should borrow the money for a church van or a computer system so that your banker will be comfortable lending you more money in the future.

Ensure That Financial Advice Is Sound
As the church grows and becomes more sophisticated financially, be certain that the church's accountant and other financial advisors have the expertise to meet your growing needs.

Many pastors continue to use an advisor out of loyalty when that person lacks the knowledge to provide the best information. When faced with that situation, pastors need to think of other ways to involve those people and find more sophisticated advisors to help with major decisions.

Source: Pastoral Manual
by Gary L. Tipton President and CEO, Inwood National Bank of Dallas.
Excerpt permission granted by Faith Library Publications