There has been a positive shift in financing and lending options for the funeral industry over the past several years, primarily because of good loan histories and incredibly low default rates among borrowers. This is due to the fact that funeral home owners are among the most diligent in repaying their debts and operating their business with financial safety and soundness.
In the Small Business Administration financing circle, there has been more clarity regarding funeral home regulations, giving lenders a better understanding of how funeral homes operate. Armed with this knowledge, lenders can navigate a suitable loan structure to advance the long-term growth of the funeral business.
“Finding a lender that specializes in financing funeral homes is critical. A lending partner should understand the value of business with or without the real estate. The goodwill is frequently worth more than the value of the real estate that houses it. A lending partner should be willing to lend against this value,” urges John Tonjes, Senior Vice President of Ready Capital.
“A lender that specializes in the funeral home industry understands typical operations and the costs related to those operations. When preparing a loan structure, the lender must include a payment structure with a payment that allows a cousin for the ebbs and flows of revenue. The loan structure should also include enough working capital to cover the transitions from one owner to the next,” John elaborates.
The most important aspects of funeral home financing are finding competitive terms, low fees, timely service, and lenders you trust.
“The best lenders will be very quick to tell you ‘no’ and they will not drag out approval times. They should be able to tell you exactly where the transaction is at and how long it will take to process,” states Matt Manske, National Funeral Home Lending Manager with BSF.
As trends in funeral business shift, the need for unique financing shifts. Ultimately, it’s about what option best meets your needs as a borrower and finding the right lender to compliment you and your firm.
“We believe that new trends and products are most important when aiming to provide the best products and services to our customers. Of course, there will be elements of traditional financing in how we serve the funeral industry, but how we create, build, and implement technology around these product and services will determine their impact and success,” explains Tim Bridgers, General Manager with Live Oak Bank.
In today’s environment, funeral home owners are recognizing the need to provide more than just a formal service for a client’s loved one. Having an event area where the family can mingle and visit after the funeral expands the boundaries of service and income generation for the business. In recent years, many funeral home owners needed financing to upgrade the inside of their funeral home with the addition of video and social media for the service. With owners focused on creating a self-contained, all-inclusive facility that supports the client experience at every level – lenders have been able to cater to this need as they have a better understanding of how funeral homes operate than ever before.
“For lenders, the fundamental principles remain the same—to ensure that qualified borrowers have access to the credit they need to expand and advance their business. For funeral home owners, this may mean implementing new marketing strategies and pursing new revenue streams, such as the addition of an onsite event center. Lenders like The Bancorp offer smart financing solutions to support this industry trend,” says Teresa Carlson, VP and SBA Business Development Officer at The Bancorp.
When it comes to finding a lender you trust, look for lenders with experience in the industry, but also pay attention to how closely they listen to you and your plans for your business. You want to find the best financing solution for your business, so take the time to ask the right questions and don’t rush the process.
“Lending regulations frequently shift. Where sellers previously carried promissory notes of 25% or more, now we are able to structure transactions where the seller holds 5% or less, enabling sellers to get more cash at closing. With the sellers having to carry less, we are seeing more long-time funeral directors being able to retire sooner and pass their firms to the next generation,” comments Kristen Livecchi, AVP and Marketing with United Midwest Savings Bank.
As firms are passed on to the next generation and funeral service trends continue to rapidly evolve, the importance of your lender or financial institution understanding the inner workings of the funeral business becomes more than just a perk – it becomes a requirement. Learn more about financing and lending options from top industry professionals who want to share tips and advice with you in this feature editorial. FBA
BSF offers funeral home loans for acquisitions, buyouts and expansions.
“Because of our industry experience, we can review a potential transaction quickly to determine if it’s a bankable deal. Our loan processing times are some of the fastest in the industry. Our closing process is streamlined so the borrower doesn’t get handed off to other people before or after the transaction. Our rates are very competitive within the industry. Our closing costs are some of the lowest in the industry,” says Matt Manske, National Funeral Home Lending Manager with BSF.
After earning a Master’s Degree in Accounting in 1995 from Kansas State University, Matt spent two years auditing for Baird, Kurtz and Dobson, a regional public accounting firm. In 1997, he accepted an outside sales position with Eli Lilly and Co. Matt quickly advanced to a senior sales level and spent the next seven years learning how to work with professional customers. Matt was recruited by a regional firm in 2004 to perform business acquisitions in the funeral industry.
One year later, Matt founded BSF to help educate funeral directors about buying, selling and financing funeral homes. Over the years, Matt has helped many funeral directors navigate their way through the transaction and financing process. His direct experience working in funeral homes and with funeral directors gives him an in-depth understanding of the day-to-day operation of a funeral home.
Matt understands the passion funeral directors have for providing exceptional service to every family. He also understands the importance of structuring transactions with minimal transaction fees. High transaction fees can put an undue burden on a transaction and stand in the way of the buyer or seller achieving their transaction goals.
The Bancorp serves the unique needs of non-bank financial service companies, ranging from entrepreneurial start-ups to Fortune 500 companies. They provide the guidance, innovative thinking, regulatory expertise and operational support their clients need to unlock new opportunities—whether expanding their business, increasing profitability, bringing existing financial products to new audiences, or creating entirely new financial products and services. The client-driven business strategy means that they put the companies we work with—and their goals—first.
“Across our business lines, The Bancorp serves some of the world’s most successful companies, helping them turn business vision into reality,” relates Teresa Carlson, VP and SBA Business Development Officer at The Bancorp.
There has been a positive shift in financing for the funeral industry over the past several years, primarily due to a positive loan history and incredibly low default rates among borrowers.
“My experience has been that funeral home owners are among the most diligent in repaying their debts and operating their business with financial safety and soundness,” recalls Teresa. “In the SBA financing circle, there has been more clarity regarding funeral home regulations, giving lenders a better understanding of how funeral homes operate. Armed with this knowledge, we can navigate a suitable loan structure to advance the long-term growth of the funeral business,” Teresa adds.
In Teresa’s opinion, the Small Business Administration (SBA) 7(a) loan product is by far the best lending tool available for funeral home financing.
“It provides the greatest flexibility to owners, giving them one loan that will cover all their needs with the longest term available. You cannot compare the SBA loan to a conventional loan product because it’s like comparing apples to oranges. A funeral home owner can use an SBA 7(a) loan for multiple purposes: to refinance existing debt, purchase a building to convert into an event center or build a new crematory, and receive working capital to expand marketing efforts. All of these projects can be financed for a fully amortized 25-year term loan,” emphasizes Teresa.
United Midwest Savings Bank specializes in SBA and USDA business loans for funeral homes and directors to use for:
Acquisitions – an ideal way to help you purchase an existing business
Refinance – many funeral homes could benefit from more advantageous loan terms
Expand – loans may be used to expand current business or add/upgrade equipment
Commercial Real Estate – purchase new or additional space with repayment terms up to 25 years
“United Midwest Savings Bank’s SBA business loans are an excellent choice for financing terms that might not otherwise be available to you in the marketplace. Many traditional banks only want to consider loans to businesses that can provide tangible collateral to secure their loans. Unfortunately, traditional banks do not take into consideration the underlying value of your cash flow and expect you to have commercial real estate or other assets to pledge as collateral. An SBA loan from United Midwest can be a great solution for funeral directors who are looking to finance an acquisition, refinance their current business or expand their business a in which there isn’t much, or any, tangible collateral,” explains Kristen Livecchi, AVP and Marketing with United Midwest Savings Bank.
“There are few lenders who understand the details and costs associated with the death care industry as well as we do. United Midwest’s SBA and USDA business loans are available nationwide and, more importantly, we provide business owners with the expertise and drive to get their loans closed quickly and efficiently,” Kristen continues.
United Midwest Savings Bank’s experience in the funeral industry is one of their biggest assets.
“By focusing on SBA Lending and concentrating on funeral homes as one of our key industries we’re not just an efficient lender, but also a knowledgeable resource. We’re more than willing to spend the time to discuss your financing options and help you find the best financing solution for your business. With United Midwest you get the personal attention you expect from a community bank with the expertise and reach of a national lender,” adds Kristen.
Ready Capital specializes in financing funeral homes. They provide financing for funeral home business acquisitions, real estate acquisitions, debt consolidations, construction, renovations and expansions. Ready Capital can provide up to 100% financing and offers competitive fixed and adjustable rates. Loan terms can be up to 25 years.
“Our team is very well versed in the funeral home industry and the economics involved in underwriting. Our goal is to provide a customized loan structure that maximizes sustainability and most importantly, cash flow,” states John Tonjes, Senior Vice President of Ready Capital. “We understand that the value of a funeral home is much more than the real estate that houses the business. The true value lies in the operators and the communities that they serve. We have an experienced team that have been lending to the funeral home industry for over 20 years. We understand your business, we have a streamlined process and you will deal with a decision maker from start to finish,” John continues.
As the baby boomers begin to retire and sell their firms, the number of firms on the market will greatly increase.
“As a general rule of supply and demand, the increase in available firms on the market could potentially lead to a decline in the value of funeral home businesses. Right now, as the economy continues to grow, lenders are more aggressive in their underwriting and lending practices. Historically this type of economic activity has resulted in a corrective recession. Sometime minor and sometimes more serious. When this happens, lenders become much more conservative and obtaining financing becomes more difficult,” advises John.
Live Oak Bank’s funeral home and cemetery lending team offers diverse loan products and custom loan packages serving customers with requests for $350,000 or greater. These loan products include conventional financing, SBA 7(a), SBA 504 and USDA loan options. Live Oak can now offer conventional loans in addition to government-backed loans to fund larger funeral home and cemetery projects.
“Over the years, as we have helped hundreds of businesses, we’ve seen the need for additional financing options. One of the primary reasons for this need is that many funeral and cemetery businesses have access to equity that makes for a successful conventional loan option. The need for additional financing options is also a result of increased succession within the industry. Because business owners are acquiring multiple businesses, they need significant capital beyond government-guaranteed loan caps. As part of Live Oak’s commitment to the industry, we are expanding our options to meet these needs and have exciting new loan solutions,” explains Tim Bridgers, General Manager with Live Oak Bank.
Live Oak Bank is unique in that they are comprised of a full team of lenders, underwriters, closers and customer support who specialize in the funeral industry 100% of the time.
“Add our non-commissioned based structure, and our robust customer support team, and you have a bank that considers themselves a true partner with every customer. With our decisions being based on sound personal credit and business cash flow, we ensure that we put our customers in a healthy business environment to repay the loan. In addition, we are committed to the funeral profession with a preferred partnership with NFDA, major state associations, and participate on the Selected educational trust board and mortuary colleges across the US,” Tim describes.