Funeral Home Financing
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There are few industries where demand is almost guaranteed — one such line of work is the funeral business. Whether you shy away from the thought of funerals and deathcare, or see a market with a steady stream of customers, the fact is that the U.S. death care market is expected to become a $68 billion industry by 2023.
There are plenty of significant expenses to consider when owning and operating a funeral home, whether you’re starting your own business or buying an existing business. As of the date of publishing, you can expect to need anywhere from $360,000 for a basic cremation facility, or up to $1.5 million for a full traditional funeral home. Most of these expenses are tied into the assets you’ll need to operate your funeral home, too.
Thankfully, there are also a number of funeral home financing options available, which can help you make your expenses more manageable. Whether you need to secure capital to purchase cremation equipment or want periodic access to cash to keep things running, there are options out there that can work to meet your business financing needs.
How to finance a funeral home
Operating a funeral home is not a cheap proposition, and neither is buying one. “Most of a funeral home’s assets is [the] land, building and equipment. [These are] tangible assets, so that can vary,” said Barbara Kemmis, executive director of the Cremation Association of North America.
Just about every funeral home will encounter certain overhead expenses. These typically include buying or leasing expensive equipment for your day-to-day work, paying overhead costs for raw materials and utilities, hiring employees and financing a fleet of vehicles in order to keep things moving.
“Typically in the funeral business, your cost of goods is somewhere between 15% to 20% of revenue,” noted Tim Bridgers, SVP and head of funeral home and cemetery lending at Live Oak Bank, though he acknowledged that ultimately “it depends on the style of funeral home.”
Many of the funeral home financing options out there are fairly similar to those that you’d consider for any other small business. Here are some of the options you may consider.
Small Business Administration (SBA) loans are a great option for funeral home financing. These loans often offer lower interest rates, long repayment terms and a high maximum loan amount.
The SBA loan program can help provide funeral home financing when other lenders may not be as willing to take a risk with lending money to a small business.
These loans are good for funeral home financing, as well as other small business financing needs, because SBA loans help entrepreneurs access capital. While banks may be reluctant to offer loans to all but the most financially robust small businesses, the SBA loan program opens doors for small business owners by guaranteeing up to 85% of the loan’s total value. This means that the bank has a reassurance from the SBA that the loan will be repaid by the administration if the borrower cannot make payments themselves. However, the downside is that the documentation and approval process can be more involved than with a traditional bank. Additionally, SBA loans require a personal guarantee from anyone who owns 20% or more of the business.
There are several SBA loan options to choose from, depending on your needs. For example, you can opt for an SBA 7(a) loan, which is designed for small businesses that need $5 million or less in working capital. Restrictions on how you use your SBA loan vary by type, so make sure that your needs match up with what the SBA allows. For funeral homes, SBA loans can help pay for just about everything from purchasing new hearses to renovating your existing funeral home and more.
Short-term loans can be an appealing option for funeral home financing when time is tight and getting quick access to capital is of the utmost importance. For example, if you have to make an emergency repair to a crematory and can’t wait around to get money from insurance (or don’t have money in savings), a short-term loan can help you get the funding you need to make these fixes. You can use short-term loans for a variety of other purposes as well.
There’s usually a short turnaround time from application to approval for short-term loans, which makes it easier to get money in your account. Short-term loans usually offer up to $100,000 in funding with terms typically ranging from three months to 18 months. In exchange for fast access to cash, however, you can expect to pay higher interest rates and have to pay back your loan balance faster than you would with an SBA or long-term loan. Payments are typically due weekly or even daily.
Before getting a short-term loan, make sure that you’ve fully explored your other options. If you need access to quick cash to purchase new embalming tables, for example, you may be better off with another option, such as equipment financing (more on that later).
Long-term loans are a common financing option used by small business owners to help cover large business expenses. These loans are similar to SBA loans, but without the guarantee that the SBA provides. This means that potential borrowers typically need to do more to prove to lenders that their business is solvent and a good candidate for a loan. Thus, long-term loans are typically harder for businesses to get.
On the flipside, long-term loans offer lower interest rates than short-term loans (and much friendlier terms than loans from alternative lenders). This means you will pay less in interest over a longer period of time than you would with a short-term loan, which can be helpful for a company’s balance sheet. Long-term loans are a good option for new construction or adding a new wing to your funeral home, for example.
There are a few downsides to long-term loans, however. For starters, some long-term business loans will require collateral to secure their loan, which can include property or other assets. If you don’t want to offer your equipment or real estate as collateral, you may not be able to pursue a long-term loan.
Business lines of credit
A business line of credit is another common option for small businesses that need access to cash on a revolving basis. Instead of applying for a lump-sum loan that gets paid out at once, a business line of credit allows you to ask a lender for a set pool of money to borrow against. You can withdraw up to the total amount of your line of credit at any given time within the terms of your loan agreement, only paying interest on your outstanding balance.
But while business lines of credit are often popular with entrepreneurs, Bridgers suggests that they may not be the best financing option for funeral homes.
“If we’re getting a line of credit request, the need for that is probably due to some serious cash flow constraining issues. We want our businesses to be able to show that they have historic existing cash flow to pay for their debt and pay themselves a sufficient salary,” Bridgers said.
Interest rates on business lines of credit tend to be higher for those with poor personal or business credit. Borrowers also may need to provide collateral to secure their business line of credit. This means that the lender can seize the assets you’ve used as collateral in the event that you can’t pay your debt.
If none of these options sound quite right for your business, you may want to consider alternative lenders. Alternative lenders provide loans to small businesses just like banks do, but without being a bank itself. These loan sources tend to have lower standards as part of their lending process, which can be beneficial for small business owners who may not have solid credit or don’t want to go through the more lengthy approval process with conventional lenders.
Although alternative lenders tend to offer easier cash for borrowers, their terms may likely be less borrower-friendly than other, more traditional sources. For example, you may have to pay double-digit interest on loans from alternative lenders, whereas a comparable bank loan would cost less. Plus, these loans often have to be paid back in a matter of months, rather than years.
Before seeking cash from alternative lenders, be sure to do your homework and exhaust other loan options first. Once you’ve done that, consider the terms offered by alternative lenders (i.e. repayment terms, interest, prepayment penalties) and whether they make the best financial sense for your business.
Where to find funeral home financing
There are plenty of small business lenders out there to choose from. Finding the right funeral home financing for your business (or business to-be) depends on what your needs are. The best funeral home financing providers combine reputation, low interest rates and — when possible — familiarity with the funeral industry. When looking for small business financing, it’s best to find a lender who understands your industry and, most importantly, your own business.
BankUnited Small Business Finance
BankUnited Small Business Finance offers specialized support for small businesses that are interested in SBA 7(a) and SBA 504 loans. Borrowers can use these funds to refinance, expand, construct or purchase property. You can also use BankUnited loans to purchase or refinance machinery and equipment. BankUnited lends across the country, which means that your location won’t limit your ability to seek out funding.
Live Oak Bank
Live Oak Bank has a dedicated staff that works specifically on funeral home financing, which can go a long way when you’re borrowing money for the first time or have specific goals for your funeral home in mind. This lender also focuses on SBA 7(a) loans for a wide array of financing goals and SBA 504 loans for real estate, in addition to conventional term loans. Live Oak also offers specific insights into purchasing a funeral home, which can prove helpful when going through the process. Like BankUnited, Live Oak Bank is also a nationwide lender.
IncredibleBank has a history of lending within the funeral business. This institution focuses on SBA loans, and it has a dedicated team of SBA loan experts to help you navigate the process. IncredibleBank purports to offer it calls “concierge services” to funeral businesses, as well as other small business types.
Fidelity Bank is another solid option for funeral home financing of various stripes, whether you want to purchase a new funeral home, refinance your debt, conduct renovations or even expand your business. This bank has more than a decade’s worth of experience in the death industry as well, and offers competitive rates on a series of straightforward loan products. Fidelity offers financing from $100,000 up to $10 million.
United Community Bank
United Community Bank offers SBA loans, and one of its specialties is funeral homes. This lender has a dedicated loan specialist who works with and understands funeral industry needs, which can go a long way when seeking out financing. In addition to SBA loans, United Community Bank offers other conventional loan products, such as business lines of credit.
The bottom line
If you’re in the funeral industry, you understand just how hard your day-to-day job can be. There’s manual lifting, coordinating care for the deceased and comforting grieving families in their darkest hour. It can be difficult to put your business’ priorities first when you have these competing interests at play, but your company’s long-term vision is just as important as the people whom you serve.
That’s why it’s vital to consider your needs before looking for funeral home financing. Whether you’re looking to bring on cremators to keep up with trends, expand your retort or renovate your reception hall, there are plenty of financing options out there to pick from. Be sure to know which one is right for you so you can keep serving your community in their hour of need.
Terms are accurate as of the date of publishing.