Following Jesus – Making Disciples – Changing the World

Notice to Partners – Loan for Roof Replacement

Summary

The Leadership Board is seeking partner approval to finalize financing for the roof replacement over the sanctuary and fellowship hall.

Over the past year we have experienced an increase in leaks in the roof during periods of inclement weather.  The Leadership Board (the Board) and Facility Deacons, based upon consultation with various contractors, have determined that the roof over the main section of the building has come to the end of its useful life and needs to be replaced.

In February 2020, the Board began to explore options to finance the roof replacement.  The onset of the pandemic led the Board to pause the project in order to focus attention on pandemic related activities and evaluating the pandemic’s impact on giving.   By late 2020, the Board authorized the project to move forward and began evaluating financing options so that the project would be completed before fall of 2021.   In May, the Board approved releasing $39,000 in cash reserves and obtaining a loan from Orchard Alliance Finance[1] in the amount of $90,000 to pay for the estimated $134,000 cost of the roof replacement.

In order to finalize the loan and move forward with the project the partners, in accordance with our bylaws, must vote to approve the loan.  Additionally, the CM&A District Office must also review and approve the loan request (scheduled for June 17th).   Project and loan details are listed below.

Project Cost and Loan Summary:

  • Project Cost and Financing:
    • Estimated Project Cost:          $134,000[2]
    • Journey Cash Contribution:   $39,000
    • Loan Amount Request:           $95,000
  • Loan Terms Requested:
    • Repayment Period:      10 years
    • Interest Rate:                5.2% (fixed for first 5 years / variable thereafter)
    • Minimum Payment:     $1,016 per month (fully amortizing and pays off loan)
  • Source of Loan Repayment:
    • Primary: Rental income received from Truth Bible Church ($2,000 per month)
    • Secondary: General fund giving (if necessary)
  • Facility Related Debt/Liens:
    • Journey’s facility is owned debt free and is free of any other liens.

Loan Down Payment and Repayment Summary

Journey’s Board intends to make a $39,000 down payment out of cash reserves.  A $39,000 down payment will leave Journey with approximately $89,600 in cash reserves.  Remaining reserves are sufficient to cover approximately 4.4 months of expenses (based upon average monthly expenses through April 2021).  To expedite loan repayment, Journey’s Board intends to make additional principal payments so that the debt is extinguished in just over six years (payment option 1 below)[3]:


Frequently Question and Answers:

Q:           Why are we getting a loan?

A:            Frankly, the timing of the roof replacement caught us by surprise.  The Board had been operating on an assumption the roof had 5-7 years remaining (starting around 2018/2019) and anticipated having sufficient cash reserves to pay for the replacement outright around 2023/2025.   However, serious leaking in early 2020 changed that assumption and required immediate action to address. The Facility Deacons explored various options to remedy the problem including repairs to problem sections and a full roof replacement.  Due to the age of the roof, repairs were deemed ineffective long term and not cost effective.   The loan allows us to balance the immediate need to replace while maintaining sufficient cash in reserves to handle any other unexpected issues that may arise in the future.

Q:           Why did the Board opt to finance the project with a loan and not engage in a capital campaign to raise funds for the roof replacement?   

A:         Based upon your faithfulness in giving over the past four years, conservative budget management, and the fact we receive rental income from another church who uses the facility we have built up our cash reserves to a point where we could contribute 30% to the cost without asking you to give above and beyond what you already have.   The Board believed coordinating a capital campaign to ask for additional funds when we have had surpluses in giving was not necessary.

Q:           Why did the Board decide to use Orchard Alliance Finance?  I have never heard of them.

A:            The Board elected to use Orchard Alliance Finance because they are affiliated with our denomination, work exclusively with churches, and offer competitive financing options.  If you’d like to explore who they are please feel free to visit their website  (www.orchardalliance.org).

Q:           How many loan alternatives did the Board explore?

A:            The Board began exploring options in October 2020 and evaluated eight down payment and loan product options.  The Board evaluated all associated cost (such as closing cost, interest cost, etc.) with each loan option to identify the best option that balanced the need to move quickly while keeping overall costs down.

Q:        Will there be a lien against our building?

A:            No, based upon the loan amount selected the loan is unsecured, meaning there will be no lien against the property.

Q:           I see that the loan has a fixed rate period and a variable rate period.  I remember from the financial crisis that variable rate loans were bad. Why are we getting one?

A:            Unlike a mortgage you would typically get for a home, commercial loan products are structured differently.  Commercial loans are primarily variable rate loans and are common for similar type projects.   The Board carefully evaluated this element and elected to go with a loan that has a fixed rate period even though it carries a slightly higher interest cost.  Further, to mitigate the risk associated with interest rates going up the Board is authorizing additional loan payments be made to pay the loan off in 6 years so that we are only subject to one rate adjustment at the end of year 5.  Based upon our analysis the loan payment will only increase a small amount during the 6th year of the loan.  Additionally, the loan if fully amortizing meaning the minimum loan payment will pay off the loan in 10 years.

Q:           What index is the interest rate tied to?

A:            Orchard Alliance uses an internal index that they control to set interest rates.  The rate is tied to their cost of funds (interest they pay investors who place their money with them) and not an external rate such as Wall Street Journal Prime.  Rates are evaluated and adjusted once a year.  Over the life of the index the largest increase was 1.25% from one year to another with most changes between .25% and .50%.   Orchard has control over the interest rate and works to move the rate in the best interest of their borrowers and investors understanding the impact it has on churches.  Who are the investors mentioned above?  Investors are individuals and other churches who have excess capital to invest.  Instead of placing their money in the stock market or a financial institution they opt to invest in building God’s kingdom.

[1] Orchard Alliance Finance is affiliated with the CM&A whose sole purpose is to provide financing to CM&A churches and ministries.   Unlike a bank or credit union, Orchard is comprised of brothers and sisters in Christ who focus solely on serving churches and ministries.

[2] At the time of the annual meeting we estimated the project would be approximately $120,000 (based upon estimates from early 2020).  However, due to increase in construction material cost our contractor informed us that our estimate increased to $134,000.

[3] Interest rates used for the variable rate period are estimates based upon an educated best guess.  Orchard provided their historical rate movements to help us assess potential interest rates following adjustments.