This is the second article in our four-part series detailing the nonprofit and church building process.
The first step: Assembling Your Team: The Key to Successful Nonprofit and Church Construction
The fourth: Preconstruction Explained: Laying the Foundation for a Successful Church or Nonprofit Project – Part 2
An important step in any construction process is assessing the feasibility of your building goal within the limits of available resources, especially time and funding. Understanding what’s realistic at this stage helps set expectations, guide conversations with lenders and donors, and prevent costly surprises later.
QUESTIONS TO ASK EARLY
When assessing feasibility, consider:
- What is a realistic project size for our organization?
- Will we need to borrow money?
- Will we need to fundraise?
Resources abound to help your team answer these questions and more.
UNDERSTANDING LENDER CRITERIA
If you plan to borrow money to assist with your project, it’s important to understand how lenders evaluate loan applications.
Debt service coverage ratio compares an organization’s operating income to its debt and interest payments. Lenders typically look for a ratio of at least 1.25, meaning the organization can pay at least 125 percent of its debt and interest based on historical cash flow.
A bridge loan against campaign funds can also be a valuable option. These loans are usually offered for up to about 60 percent of the amount pledged—what lenders assume organizations will likely realize. This can allow you to begin construction sooner instead of waiting until all pledged funds are collected.
Keep in mind that construction loans are typically approved at less than 70 percent of the appraised value. Loan officers use design documents and supporting materials to determine how much value the new construction will add to the property.
EXPLORING RESOURCES AND SUPPORT
There are several local companies and independent consultants specializing in helping organizations develop financially feasible plans. Some offer feasibility studies focused on financial analysis, while others provide fundraising support ranging from strategic coaching to hands-on campaign management.
NEXT STEPS
Determining whether your project is financially achievable can be challenging. Supreme Structures is ready to help your organization explore its options, connect with trusted resources, and develop a path forward.
Contact our team to learn more about our process and start your preconstruction journey.