The Lending Landscape : Construction Financing
Lending , interrupted (?)
A long-time church lending expert talks about how churches navigated COVID-era financing challenges — and the lessons they ’ ll carry forward .
Tell me about WatersEdge and your history with the company . Jerry Vaughan : WatersEdge Ministry Services ( formerly The Baptist Foundation of Oklahoma ) has been making loans to churches since 1953 . Personally , I ' ve been here almost 21 years and came from a banking background , spending almost 20 years as a lender . I was also on staff as a church administrator in North Carolina for about four years . In my time here at WatersEdge , we ' ve expanded our operation from making loans to only Oklahoma churches , to issuing loans in 22 states . One of our main strengths is our ability to keep the process fairly simple . While we prioritize due diligence , of course , we
don ' t have the same regulatory pressures as banks do . What we bring to the table is a streamlined process . We try to move from application to closing as quickly as we can . Another thing that makes us unique is that the interest a church pays on a loan through WatersEdge is returned to other churches and ministries through our investment program . We ’ re a nonprofit . And we don ’ t take deposits from individuals ; it ’ s all from churches and like-minded , not-for-profit ministries .
Can you compare 2021 to 2020 in terms of construction financing ? Vaughan : A lot of churches put their projects on hold in 2020 or decided not to move forward with projects they ’ d been considering . One big reason is because the cost of building skyrocketed . Several churches I work with had already closed on their loans but hadn ’ t started construction ; they went back to re-cost or resize their projects . A church here in Oklahoma saw an almost 200-percent increase in its project cost ! Another church — this one in Virginia — came to me a few weeks ago and said , “ We ' ve refigured the project cost , and we ' re going to need to borrow another $ 1 million .” Fortunately , we were able to accommodate this need and keep the church ’ s project moving forward . And the costs just keep going up . Additionally , delivery delays are happening on a wide scale . Several churches I ’ m working with have decided on metal buildings , but they ’ re looking at eight- to nine-month delivery delays . That ’ s unusual .
Likewise , how does 2021 construction financing landscape compare to pre-pandemic ? Vaughan : There ' s just no comparison . For us , 2019 was a fairly active year in terms of churches expanding their ministries . Now , as I mentioned , a lot of the churches who paused their projects in 2020 are reengaging and starting back up with their planning . I think people are coming back on campus , and churches are beginning to feel the need for new , expanded space . The applications I started getting in March seem to be fairly similar to what I was getting in 2019 before COVID hit .
Have any trends emerged related to the kinds of facilities churches are building now ? Vaughan : So many churches have gone back to reimagine how they use their space . For example , they ’ re considering bigger , multifunctional rooms . But I also get the sense that things are pretty much returning to normal in churches . There are still some facility-use questions , but a lot of the unknowns surround the new normal in churches — what that ’ s going to be . I recently talked to a pastor in Colorado who said that 30 percent of his church ’ s attendance is still online . And I keep hearing that about onethird of people will never come back to physical worship ; another onethird will come back ; and the other one-third is still deciding what to do .
Do you expect any pandemic-centric construction financing " trends " to carry forward ? Vaughan : Yes ; the focus on technology . In my experience , a lot of the churches that had streaming capabilities and online giving in place pre-pandemic didn ’ t miss a beat . In fact , many of those church leaders have told me that their giving only declined slightly , if at all , during COVID . On the other hand , I ’ ve heard of churches where deacons went doorto-door to get contributions because they didn ’ t have an online giving platform in place .
Are there any lessons learned related to pandemic-era church lending that are important for churches to be aware of in the future ? Vaughan : Mostly that they need to be prepared for unexpected situations that impact the church directly . You need to be able to react . So , staying connected to your church — other than just in-person meetings — is going to be important . I also think churches will need to decide at some point how best to conduct small groups . Even at my small group that I attend and teach , we ' re continuing to offer a Zoom alternative .
I think what you ' re saying is important , because if a church does these things — and sustains engagement as a result — maybe it won ’ t need to suspend their building projects the next time disruption strikes ? Vaughan : Right . But frankly , I think we were all surprised that church giving didn ’ t take an across-the-board hit . That ’ s a testimony to the faithfulness of many Christians . As a church lender , I can tell you that we weren ’ t sure how churches would be impacted when the pandemic initially hit . As we progressed through 2020 — April , May , June , July — we were still unsure . Then , starting around last August , I began to see loan applications pick up again . I think COVID has been a big lesson in adaptability . A church needs to be nimble and flexible . But they also need lenders who are adaptable , who can move with them . That ’ s one of the benefits of having a ministry-related financing partner like WatersEdge : we understand what ’ s going on in churches and make provisions for that .
— Reporting by RaeAnn Slaybaugh
18 CHURCH EXECUTIVE | JULY / AUGUST 2021