Churches and How to Get Them Funded by Banks in South Africa

I grew up in Churches all my life, particularly the Roman Catholic Church. I was baptised by my Bishop at 10 – it was election year – 1994. I went to a High School within an Abbey (Monastery and Convent) in Vryheid and got most of my spiritual teaching there. I remember the long talks with nuns and monks about life and why they ended up giving up living a normal life to live a life of prayer. I have since also taken jaunts to many other types of churches, as you do, some less orthodox than others. I have been to happy clappy, conservative and “pious” churches. For as long as I can remember Churches have always needed to access more and more cash to continue providing their services.

An aside: I have also banked Synagogues.

We have all been part of one or other committee that seeks to raise funding for our religious convictions. Churches in South Africa are normally either Non-Profit Organisations and/or Non-Profit Companies. Because of the changes in legislation with the New Companies Act, the tough economy, and various governance regulations, most churches find it harder and harder to raise funding. As a person who has initiated and completed funding requests for churches, here is the following I can share that will make your church much more fundable by a bank:

• Your constitution must allow the Church to raise funding from lending and must stipulate who is to sign for it e.g. Finance Committee Chairperson, overall Chairperson, or Secretary etc.
• Your constitution must also stipulate whether the church can own property and encumber it with debt and who is to make that decision;
• You must have a resolution resolving to take up debt or encumber or use Church property as security.

An aside: If a Church runs businesses in order to be self-sustaining, then it might be wise to create a separate for-profit business for these businesses, or to create a new Non-Profit Company or organisation with a business arm. Disclaimer: Whether you use a for-profit or non-profit company, you are still liable for income tax on all net income generated from profit generating activities.

You will also need all the documents that are normally required for business funding:

Must Have Documents:

• The Constitution of your organisation and/or company documents with a Memorandum of Association. This is vital as the Church is a separate person to the congregants and has its own governance rules;
• Copies of the Church’s proof of address certified by a commissioner of oaths;
• Resolution detailing who made the decision. This is read together with the Constitution to ensure that it is not impostors who are trying to raise funding;
• You will need a resolution confirming the appointment of the individuals who made the decision to their relevant positions;
• Copies of ID for every appointed individual certified by a commissioner of oaths;
• Proof of address for each appointed individual, dated within the preceding 3 months and certified by a commissioner of oaths;
• Last 3 years’ Annual Financials for all contracting parties – if it is the church directly, you will need for the church; if there are other revenue-generating activities, then you will also need the Financials for those entities as well;
• Management Accounts dated within the preceding 2 months and that include data from the last annual financials. It is preferable that data is for less than 12 months;
• Sale Agreement or Offer to Purchase – i.e. if you are purchasing a Pastor’s house or doing extensive renovations on the Church property etc. You could be in a matching agreement with one of the parishioners for a business purchase or start-up etc. Anything to prove what you are doing, why, how and what you need to get it done;
• Also linked to this might be a Business Plan, especially for a start-up. In the very least for a property purchase, you will need a property income schedule that will assist you in calculating whether you can really afford it. A Business Plan will outline what it is that you want to do, how you want to do it, how much it will cost you and allow for risk and financial analysis on the viability of the project. It will also showcase the amount of research you have done and have quotes, drawings and all relevant information as attachments;
• All invoices/quotes, building contracts etc. so that the bank can assess if it is willing to invest in your project;
• Your latest Asset Register signed and dated by your Accountant. This is an inventory of all the assets you own and how much they are worth including the year, make, model etc.;
• If you owe money on the property, you will be using as security, the latest bond statement will also be needed.

While the list above is non-exhaustive, it will allow the banker/funder to workshop the deal sufficiently to show whether the funder has an appetite or not.

How Does the Bank/Funder Calculate Whether You Can Afford It:

• The Church must generate enough free cash flow to pay back the loan by itself;
• Any other business owned or controlled by the Church can also prove affordability and sign suretyship. This is normally enough for the loan to be granted subject to security
• If a parishioner or churchgoer can also show they can pay, it would be done on the affordability side;
• Normally banks would request some sort of security or “commitment” from you that is acceptable to the funder in order to grant the loan. This could be in the form of shares in listed entities, cash or cash equivalents, commercial and residential property etc.;
• If the Church does not have enough free and unencumbered assets to put up as security, then any of the churchgoers can put up a freehold property or even his investments or cash as security and sign suretyship to effect it.

Problems arise though when the property is a national monument or on a conservatory etc. This would mean that both the municipal council and South African heritage Resources Agency would have to approve the changes made to the property in the case of renovations.

Some Tips on Governance Issues:

1. Do not let one person control SARS e-filing logins. This is a recipe for disaster, because if you have a dispute with them, they hold all the cards;
2. Choose your accountants wisely, balancing cost with effectiveness;
3. Do not shirk on paying taxes that you should be paying. Most Churches I got funded, while the cash flow supported the decision, it was mostly made because of their good name and long-standing relationship;
4. Have a qualified Finance Specialist help you and likely also head of the Finance Committee. Having a business banker or Investment specialist will help;
5. Collate your Annual Financial information in a timely manner and pay all your statutory obligations such as UIF, Compensation Fund and always keep some money aside for retiring employees and for paying off leave days when someone leaves. An investment policy or simple notice deposit will do depending on when you expect the person to leave;
6. Always minute your meetings and ensure that you can always provide this information when requested.

To get a funding plan for your Business contact us at tk@sekcapital.net or 0676979827. This is only R5,700. We will research which funders are willing to fund your business, what kind of deals do they offer and what you need in order to get started. Some funders will do 60:40 splits and some will do up to 100% finance, subject to cash flows. Most people waste years trying to raise funding without interrogating each funder’s credit policy first. We do this upfront for you. The best time to do it is about 12-18 months before you need funding. It makes for better planning and gives you enough time to raise your own contribution.

Alternatively, you can get a verbal Business Plan in a telephonic session with us. We normally need only one hour, and we charge an hourly rate of R1,250 per hour. You won’t need more than that. We have developed questioning templates that get the most information out of you quickly. In this way, we can add value by creating a Business Plan for you without having to write it down for you.

Lastly, take advantage of our Business Plan writing services. Pricing on request. We can also include a 5-point credit motivation plan for your Church, if it is ready to be funded.

TK has not only banked Churches and a synagogue within the Cape City Bowl and Atlantic Seaboard, but I have sat on Finance committees in my own Church to assist in improving finances.