1. Operations 104 Finances, Part 2

2. Mike Boblit Guest Lecturer Mike Boblit is a Ministry Development Officer with the Evangelical Christian Credit Union and has been ECCU since 2000. His current role includes consulting and pioneering financial service solutions for some of the largest churches and parachurch ministries in the country as a part of the ECCU Major Accounts Team. He worked for several Fortune 500 organizations, including Eastman Kodak Company, Kappa Consulting Group, and Sybase Inc., providing business solutions using imaging and database technology.

3. Class 3—Banking and Loans Churches understand what they want out of a banking relationship—low fees and great products. Churches understand what they want out of banking loans—lots of money and low interest rates. But what is the bank’s perspective? What should the church consider in a banking relationship? There are hallmarks of good bank relationships. Churches should consider issues of lines of credit, letters of credit, short-term and long- term loans and the number of accounts for FSDA amounts. Banks have criteria for loans, such as cash reserves, financial stability, audits and independence of finance committees. This class will pull back the curtain on what the bank considers to be a great relationship and whom the bank would want to make a loan to.

4. Banking and Loans: A Community Model

5. Community Model Products and Services Affinity Service Re-Investment in community

6. Funding Your Vision: “Vision comes first” Loans

7. Understanding health: “The single most important thing you can do for your health is understand your risks and what you can do about them.” –Kaiser Permanente

8. When is financing not the answer? To bridge poor fiscal practice To turn negative trends around To speed up reaching your vision When you’ve haven’t exhausted every resource If you have no skin in the game When you have to cut ministry

9. Typical credit criteria: Character: If you can afford to, will you repay the debt? (good management) Cash: Unrestricted cash Capacity/Cash flow (consistent): Can you afford to repay the debt? Collateral: If you’re willing but unable, how will the debt be paid? Concentration of gifts: Know your top givers Conditions: What’s the weather like outside?

10.  Financial reporting:  Accurate  Adequate detail  Positive net income  Liquid cash  Collateral, property value  Historical performance supports debt load  Loan’s impact on your ability to stay on mission How lenders evaluate creditworthiness:

11.  Leadership:  Meets financial obligations  Plurality of decision-makers  Succession plan  Internal controls and financial oversight

12. Lender’s eyes (stakeholders): Income Current cash and cash equivalents Attendance/enrollment Staffing expense Key ratios: – Debt servicing ratio (DSR) – Salary expense ratio (SER) – Debt service/salary ratio (DSSR) – Debt service coverage ratio (DSCR )

13. DebtStaffMinistry Income Ministry buckets:

14. DebtStaffMinistry Income Debt service ratio: Church 30%

15. DebtStaffMinistry Income Salary expense ratio: 30%35%

16. Debt service/salary ratio: DebtStaffMinistry Income 30%35% <65%

17. Debt service ratio: School/Para-church Tuition/Income DebtStaffMinistry 15%

18. DebtStaffMinistry Income Salary expense ratio: 15%65%20%

19. Debt Service/Salary Ratio: DebtStaffMinistry Income 15%65%20% <80%

20. Debt service coverage ratio: Net income Interest expense +Depreciation/amortization Available for debt/ Annual debt payments =>120% - 125%

21. Example Scenario

22. Costs of financing: Origination point (0.5% - 1% +) Appraisal/title Interest: – $1MM at 5.5% = $870,000 over 25 years Banking requirements Compensating balances: – Banking transition Reporting requirement: – Financials Control over decisions: – Covenants

23. Cash reserves today:

24. Suggested practical steps today: Build liquidity Read/update bylaws (focusing on leadership) Monitor variances in budget: – Push down accountability to ministry leaders Staff expense control Open up communication: – Financial reports (push/pull) – Frequency (how much?) Establish ministry measurements (benchmarks/dashboard): – Meaningful – Measurable – Manageable – Mmmmm… actionable

25. Q & A Send Questions via Chat to Tami