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The financial strength of your organization directly impacts the success of your ministry. This brief assessment points out possible areas of improvement as well as recommended next steps to ensure the stability of your ministry.

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Debt-Service to Income Ratio (DSI)

Flags

Debt-Service to Income Ratio > 33%

Short Term Balloon Note

Interest Rate > 6%

Debt-Service to Income Ratio < 33%

Interest Rate < 6%

Analysis

Your DSI is greater than 33% on a short-term loan

Your adjusted Debt-Service to Income Ratio (DSI) is #%. As a best practice, your DSI should not exceed 33%. Although your annual minimum loan payment is $##### each year, you would need to pay $###### each year to pay off your loan when it is due in # years. That is ##% of your annual revenue. If you choose to continue paying the minimum payment until the end of the term, you will need to refinance your remaining balance of $#######. With this approach, you will need to pay the associated refinancing fees and your new interest rate will be determined at that time.

Your DSI is greater than 33%

Your adjusted Debt-Service to Income Ratio (DSI) is #%. As a best practice, your DSI should not exceed 33%. Anything greater than the recommended 33% could compromise the stability of your church and your ability to minister. You can lower your DSI in 2 ways: (1) decrease your interest rate or (2) increase the giving of your church through various recommended stewardship initiatives.

Your DSI is less than 33%

Your adjusted Debt-Service to Income Ratio (DSI) is #%. As a best practice, your DSI should not exceed 33%. This means that your debt should be manageable. However, be cautious when your DSI nears 33%. Keep in mind a lower DSI leaves more room in your budget for ministry and outreach.

Your interest rate is greater than 6%.

Your current interest rate is #%. Because of the current market, you may be able to find a lower interest rate that will increase your cash flow and provide additional room in your budget.

Recommendations

  • Refinance to a longer-term loan. While it is recommended that churches pay off their loan as quickly as possible, a high DSI can be detrimental to the effectiveness of your ministry. Refinancing into a longer-term loan would enable you to lower your DSI and give you time to pay off the loan while increasing your cash flow. This approach would also prevent you from having to refinance again in just a few years. Complete a Loan Inquiry »

  • Read the article, What is Your Loan Really Costing You? This brief article goes into greater detail about term, amortization, and short-term vs. long-term notes. It may help you determine the best next steps for your ministry. Read article »

  • Download the Church Budget Template. Do you need a better picture of your finances? This template will allow you to input your current financial situation so you can clearly understand your bottom line and determine the best next steps for your ministry. Download Template »

  • Read the article, Navigating the Church Budget. This brief article provides church budgeting best practices and practical tips so that you can create an effective budget for your church. Read article »

  • Download the Church Budget Template. Do you need a better picture of your finances? This template will allow you to input your current financial situation so you can clearly understand your bottom line and determine the best next steps for your ministry. Download Template »

  • Download the Church Construction White Paper. Is your low DSI due to a rapidly expanding ministry? If so, you may be considering a church expansion project. This white paper walks through church construction best practices including tips for getting started and ways to stay within your budget. Download white paper »

  • Read the article, Navigating the Church Budget. This brief article provides church budgeting best practices and practical tips so that you can create an effective budget for your church. Read article »

  • Download the Church Budget Template. Do you need a better picture of your finances? This template will allow you to input your current financial situation so you can clearly understand your bottom line and determine the best next steps for your ministry. Download Template »

Definitions

  • Debt Service to Income Ratio:

    Annual payments on long-term debt divided by annual income (the percentage of annual income spent on debt repayment).

  • Term vs. Amortization:

    The term of the loan is the length of the loan or the number of years you have the loan, whereas the amortization is the payment schedule for your loan or how long it will take you to pay off the loan amount based on your current payment schedule. If your loan is on a 20-year amortization, then your monthly payment is based on a schedule of 240 equal installments, regardless of how long the loan term. At the end of the term, the loan matures and any remaining principal balance will be due in what is called a balloon payment. For example, you could have a loan where the term is 10 years, but the amortization is 20 years. This would reduce your monthly payment (based on paying the loan off in 240 months) but at the end of the 10 year term, you would still have a loan balance.

  • Balloon Payment:

    The unpaid principal amount of a loan due on a specific date in the future, usually the amount that must be paid in a lump sum at the end of the fixed rate term.

  • Short-Term Balloon Note:

    A type of loan that matures after a short term (typically 5 years), at which time any remaining unpaid principal balance is due in full in what is known as a balloon payment.