How to Finance a Funeral Home Acquisition
Financing the acquisition of a funeral home can be a complex process with significant hurdles for buyers. From securing funding for real estate to obtaining loans to cover the intangible value of a business, buyers have traditionally faced limitations in financing options, especially for larger transactions. However, new lending solutions are emerging to meet the needs of independent funeral home owners looking to acquire or expand multi-location businesses.
In this comprehensive guide, we’ll walk through the key considerations around financing to acquire a funeral home or cemetery business. Whether you’re hoping to buy a single location or a chain of funeral homes and cemeteries, understanding the loans available, their limitations, and new options is essential for successfully structuring your deal. Read on for an in-depth look at navigating the funeral home acquisition financing process.
Types of Loans for Funeral Home Acquisitions
When looking to finance the purchase of a funeral home business, there are two primary types of loans to consider:
Conventional Loans
Conventional loans for funeral home acquisitions are sought directly through banks, credit unions, or other financial institutions. These loans offer borrowers a lump sum payout of funds that must be repaid on a fixed schedule with set interest rates.
Overview of Conventional Loans
With a conventional loan, the buyer takes on responsibility for repaying the loan per the terms agreed upon with the lending institution. These loans can provide financing for both the real estate purchase and goodwill components of acquiring a funeral home.
Limitations of Conventional Loans
While conventional loans offer predictable payments and set timelines, they also come with several downsides for funeral home buyers:
- Typically require a strong credit history and ability to qualify based on strict criteria
- Often limit maximum loan amount, which can preclude larger acquisitions
- May not provide financing for goodwill portion of the transaction
- Lengthy application process with extensive documentation
Essentially, conventional loans work best for buyers with pristine credit and sufficient assets to meet the lender's qualifications and for smaller acquisition deals. Their strict requirements limit their usefulness for those seeking to finance multi-million dollar funeral home purchases.
SBA Loans
In contrast to conventional loans from banks, Small Business Administration (SBA) loans provide funeral home buyers another option to consider, one that offers several advantages.
Overview of SBA Loans
SBA loans are funded in part by the federal government, which minimizes the lending institution’s risk if the borrower later defaults. For the borrower, SBA loans provide longer repayment periods, lower down payments, and less stringent credit score requirements than conventional loans.
How to get an SBA Loan
Meow can help prospective buyers of funeral homes fund their acquisition with an SBA Loan. Financing takes typically 4-8 weeks and is assisted by our expert team that specialize with matching your needs with the right loan option.†
†Meow is not a mortgage lender or broker or depository, bank or credit union. Meow provide guidance and support in securing SBA loans through authorized financial institutions.
Limitations of SBA Loans
Despite their perks, SBA loans pose a major barrier to large funeral home acquisitions due to loan amount limits:
- Maximum loan amount is $5 million
- Loan maximum precludes financing multi-location and other large transactions
- Require substantial paperwork and documentation
For buyers seeking to purchase funeral home chains or combine a funeral home and cemetery business, SBA loan caps fall well short of supporting these larger deals.
New Conventional Loan Solution for Larger Acquisitions
To overcome the limitations funeral home buyers face with conventional and SBA loans, The Bancorp Bank and Homesteaders Life Company have partnered to provide a new lending solution. This program offers a much-needed option for independent funeral home owners who want to execute larger acquisitions.
Overview of The Bancorp Bank and Homesteaders Program
This new conventional loan program provides key advantages compared to other financing options:
- Loans ranging from $5 million to $20 million
- Ability to finance goodwill/non-real estate assets
- Competitive rates and terms
By providing larger loans and flexibility in use of funds, this program facilitates multi-unit acquisitions beyond what SBA loans can accommodate.
With higher loan amounts and goodwill financing, this new program meets the needs of independent funeral home owners pursuing more sizable transactions, such as:
- Acquiring a chain of funeral homes
- Buying a funeral home and cemetery combination business
- Adding new funeral home locations
For deals of this scale, this conventional loan solution offers the capacity other lenders lack.
Allows Financing of Goodwill and Other Non-Real Estate Assets
This program carries the distinct advantage of allowing buyers to finance the goodwill portion of an acquisition deal. Goodwill includes assets like:
- Brand identity
- Strong community reputation
- Loyal client relationships
- Trained employee base
All of these components account for significant value beyond just real estate. This program provides the flexibility to fund these intangible assets that drive the ongoing success of a funeral home or cemetery business.
Key Uses Include Acquisitions, Refinancing, and Commercial Real Estate Purchases
Buyers can utilize this new solution for diverse acquisition needs:
1. Acquire Multiple Funeral Home and Cemetery Locations. The expanded loan amounts open the door for larger deals to build a regional chain of funeral homes and cemeteries.
2. Buy Combination Businesses. For buyers hoping to acquire both funeral home and cemetery businesses as a joint venture, this program accommodates financing these larger deals.
3. Purchase Commercial Real Estate. The purchase or construction of commercial real estate can also be covered through this loan program.
4. Refinance Existing Debt. By consolidating and refinancing debt under this new lending solution, buyers can find potential cost savings too.
In all these situations, buyers can access the higher loan totals and goodwill funding they need to successfully finance larger funeral home and cemetery acquisitions.
Applying for a Funeral Home Acquisition Loan
When exploring financing for acquiring a funeral home or cemetery business, connecting with the right lenders is key. Here is an overview of the process and tips for securing favorable loan terms.
Loan Application Process
Applying for acquisition financing begins by:
- Reaching out to recommended lenders
- Providing documentation of credit history, assets, and business plans
- Allowing 1-2 months for review and processing
Having advisors guide you through the documentation and qualification requirements can smooth the application process.
Tips for Qualifying for Favorable Loan Terms
Though requirements vary across lenders, following these tips can strengthen your loan application:
1. Review credit reports and payment history
Document your creditworthiness across personal and business accounts to resolve any issues before applying.
2. Gather required financial statements
Have 3-5 years of detailed financial statements for all business entities ready to share. For startups, provide opening balance sheets.
3. Connect with recommended funeral industry loan consultants
Seek referrals to lenders like The Bancorp Bank and Homesteaders Life Company familiar with funeral home and cemetery acquisition financing. Their expertise can prove invaluable.
With proper planning and preparation, buyers can demonstrate their creditworthiness and capacity to take on acquisition financing, whether for a single funeral home or a chain of operations.
Other Financing Options
Beyond acquisition financing, funeral home and cemetery businesses can also benefit from other types of loans, including:
Funeral Home Debt Consolidation Loans
By consolidating multiple funeral home loans into one lower monthly payment, this can free up cash flow.
Funeral Home Expansion and Remodel Loans
These loans finance physical funeral home upgrades like expansions, renovations, and new equipment.
Funeral Home Partner Buyout Loans
In the case of buying out a partner to take full ownership, these loans smoothly facilitate the ownership transition.
Funeral Home Startup Loans
For entrepreneurs launching brand new funeral home businesses, startup loans provide critical early funding.
Funeral Home Working Capital Loans
Working capital loans inject funds to support daily operations, manage payroll and expenses, and facilitate growth.
Whether looking to reduce costs, upgrade facilities, transition ownership, or launch operations, alternative lending solutions beyond acquisition loans can prove vital at any stage of the funeral home business lifecycle.
Conclusion
Purchasing a funeral home or cemetery business marks a major financial decision requiring careful planning and finding the right financing. As this guide outlines, buyers must navigate the variety of loan options as well as their limitations when structuring acquisition deals. Conventional loans and SBA loans each carry restrictions around loan amounts, financing eligibility, and strict qualification barriers that can limit their utility for larger transactions.
Fortunately, forward-thinking lending collaborations like the new solution from The Bancorp Bank and Homesteaders Life Company are now providing alternatives tailored specifically to the funeral home sector. For independent funeral home owners seeking to acquire chains of locations or combine funeral home and cemetery operations, this program delivers on the loan amounts and funding flexibility needed to turn these substantial deals into reality.
Whether looking to finance a modest single location funeral home transaction or execute a multi-million dollar rollup of dozens of operations, the acquisition loan landscape continues to evolve. As buyers understand their options and connect with specialists in funeral home lending, they can craft financing packages to fund goodwill and real estate for deals of nearly any size. The potential of the funeral home industry hangs in the balance, ready to be unleashed by buyers with the resources and vision to expand through ambitious acquisitions.