Nonprofit update

I have a series of posts about ratios analyzed by lenders when they are considering a loan to a church.  The series has been combined into a page so you can see all the posts in chronological order.  Click on the tab Ratio Analysis For Church Loan at the top of this page.

This wraps up a series of posts on ratios a lender looks at when considering whether to make a loan to a church.  The series started here.  Just a few thoughts.

The recession has hurt giving levels at most churches.  The financial health of the balance sheet has suffered as well.

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This series of posts discussing ratios used by lenders when considering whether to make a loan to a local church starts here,

A few additional comments on stress test and cash on hand –

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A local church should keep track of its equipment, improvements to property, and building.

You will definitely need that information if you have an audit, review, or compilation of your financial statements.

A far more common reason to accumulate that information is for insurance purposes. In the event of a tragedy such as earthquake, tornado, or hurricane, you will need to have some detail records to present to you insurance company to get full recovery for your loss. Read the rest of this entry »

This is the most technically complex ratio we will discuss.  This is one of three calculations that lenders typically use when considering whether to make a loan to a local church.  Previous discussions started here, and continued here and here.

The concept of this ratio is to look at how much income the church had last year to apply towards the loan payments.  This would take the change in net assets (okay, okay, you can call that net income if you want) then add back interest and depreciation.  This represents the income that could be applied to loan payments after all the other expenses were paid. 

This number is then divided by the total P&I payments, not just the interest expense. 

So you see it is an interesting arithmetic calculation.  The goal is to provide an indication how easily the church will be able to continue making loan payments.

So what does this calculation look like?  Read the rest of this entry »

Another thing lenders look at when evaluating whether or not to make a church loan is the ratio of debt to total income.

This calculation looks at the total long-term debt, or the loan that is being considered, and compares that to the total revenue.  This would include contributions and the various program revenue items.  If there is a school, the tuition income would probably be included. 

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