Budget Considerations

When a Church begins to plan a building project, the focus usually centers around two primary questions. The first question is, "What type of building will our Church need?" The second question is usually, "How will our Church pay for the new building?"

The second question is usually addressed by the Church finance committee which will determine fundraising and borrowing needs, as well as evaluate what a realistic construction budget might be for the project.

Even though most Churches may first engage an architect to design the new project, but in the process, the architect usually will provide the Church with a rough construction budget. The Church can then use this budget to establish a plan to pay for the building. On the other hand, if the architects do not have an intimate knowledge of the local building conditions, they may underestimate what it will actually cost the Church to construct the new facility.

When a new construction project is finally put out to bid, many Churches are surprised to discover that the lowest bid from a contractor is somewhat higher than the building cost initially quoted by the architect. This can present the Church with a problem since the financial models assumed that the construction cost would be lower. The Church may have already conducted fundraisers, and announced to the congregation a specific cost or budget for the project. In many cases, the Church may have secured a loan commitment from a lender for a specific amount. At this point, it can be extremely difficult to go back to the congregation or a lender for more money. Usually, the only choice at this point is to reduce the size and scope of the project. This can cost the Church more in architectural fees and puts pressure on church leaders, who at some point will have to convey to the congregation that the project must be scaled down.

One solution to the problem of differing project cost estimates is to begin a dialogue with reputable contractors in the area very early in the planning process. The following are some questions to ask a local contractor:

• Have they had any experience with a particular architect?
• Ask about the cost feasibility of the project.
• Do the contractor's construction costs per square foot agree with the costs being represented by the architect?
• Are there any unique architectural features of the new building, which could increase the construction costs?

Once these questions are answered, begin to compile the budget for the construction project. Be certain to include the following items:

• Hard costs are those related to the actual construction of the project. Unless you have an actual bid from a contractor, an estimate can be made based on a typical cost per square foot of a comparable Church structure built in the area within a reasonable amount of time. Architects, contractors and lenders know the typical construction costs for various types of structures. Be sure to include costs for seating, furnishings, lighting, and audiovisual items.

• Soft costs are often overlooked. Those include permit fees, soil testing, inspection fees, state documentation taxes, engineering fees, etc.

• The construction project budget should also include those costs related to preparing the site. Site preparation may include grading, retaining walls, environmental remediation, retention ponds, or demolition of existing structures.

• Architectural fees and other design expenses should be identified separately from other project expenses.

• Many lenders will require a qualified cost engineer to review the budget and specifications of the project in order to ensure that the project can be built for the specified contract amount.

• Most lenders will require a budget detailing how the project will be funded and how the funds will be spent. A budget should help the Church make an appropriate representation to a lender as well as help you determine the actual costs associated with the construction project. Suggestions for creating a budget are listed below:

• If a new site has been purchased, the lender will want to know the actual cost and when it was purchased.

• The City or County may require new roads, turning lanes, streetlights, or utility lines. Be sure to find out if these items will be required, and include them in the budget if necessary.

• Be sure to include all money spent to-date on the project, and include the dates those expenses were incurred.

• The lender will also want to know the actual money on hand as of the date of the application. Only include those funds that are available for the project, and not those designated funds committed for other purposes.

• Include a reasonable projection of any additional money that the Church anticipates receiving prior to closing on the loan.

• If the sale of an existing facility is necessary in order to generate the required funds to complete the project, the sale must be completed in order to be considered as a reliable source of funds.

Hopefully, these items will help your Church arrive at an accurate budget as well as determine how much money will be necessary to complete the construction project.

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If you have questions at any time, please don't hesitate to contact us at:

GREAT NATION INVESTMENT CORPORATION
Attn: Martin Northern Vice President and Branch Manager

P. O. Box 1302
Benton, AR 72018-1302
Phone: (501) 316-3100 * (800) 468-3007
Fax: (501) 316-3110
Email: martin@martinnorthern.com

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