Funeral Parlour Commercial Loan

Funeral homes offer a space for bereaved family and friends to find some closure after the death of a loved one.

They can also be a lucrative investment opportunity but only a few lenders will consider approving a funeral parlour commercial loan.

How much can I borrow?

• Freehold (purpose-built): Borrow up to 65% of the property value or up to 105% using a guarantor.
• Freehold (converted residential): Borrow up to 50% of the property value.
• Leasehold: Borrow up to 50% of going concern valuation by a bank instructed valuer.
• Maximum loan term for freehold: 25 years.
• Interest only term: Maximum 3 years.
• Maximum loan term for leasehold: 5 years.
• Loans over $5,000,000: Assessed on a case by case basis.
• Business plan required for going concern: This includes cash flow forecasting.
• Residential property as security: Required if you lack business experience.
• Low doc options: Not available due to the specialised nature of the property.
• Interest rate discounts: Vary depending on the lender and your financial situation.

Call us on 1300 889 743 or fill in our free assessment form so we can provide you with an indicative funding approval for a funeral parlour loan.

How can we help?

Thanks to the relationships we have with the commercial arms of the major banks and lenders, we can help you:

• Maximise your borrowing power and borrow up to maximum Loan to Value Ratio (LVR) available for a funeral home.
• Qualify for a significantly reduced interest rate.
• Take advantage of commercial loan features that will help your manage your repayments and maximise your return on investment.

What security will lenders use for the loan?

• Mortgage over funeral home (or lease, if leasehold).
• Registered fixed or floating charge or Bill of Sale over the business assets of the funeral home.
• Directors’ guarantee.
• A deed of consent between lessor/lessee and the bank.

Need funeral home equipment finance?

Our mortgage brokers are specialists in equipment finance.

We can help you qualify for a competitively-priced business loan to purchase the many types of machinery and items you need for your business, including:

• Embalming machines.
• Hydraulic lifts.
• Refrigeration systems.
• A hearse and other dedicated automobiles for funeral processions and body transportation.
• Air trays for transporting bodies via air.
• Stainless steel preparation tables.
• Caskets and urns.

How do banks assess funeral homes?

Funeral homes are considered to be a ‘specialised’ commercial property so your borrowing power can be restricted compared to standard commercial properties like warehouses or office units.

The market is a lot smaller for funeral parlours which presents a high risk to the lender should they be forced to sell in the event of default.

At any rate, banks will undertake two going concern valuation types:

• Real property and business value.
• Lessee’s interest value.

These valuations are dependent upon who owns the freehold and who runs the business.

Generally speaking, banks will take into consideration:

• Total revenue.
• Gross margin.
• Wages for revenue figures.

Lenders will generally consider the financial performance of each of the above factors and how they impact the overall business.

Bank valuers will also take into account the current industry and business environment and whether competition in the area will have a negative impact.

What if the parlour is a converted home?

Although many funeral homes have been converted from an existing residential property, lenders still consider it to be a commercial property.

The reason is that the property is zoned for business use and is purpose-built to include dedicated spaces to hold wakes, services and viewings.

There may also be a dedicated chapel area for families that wish to hold a religious service as opposed to a secular ceremony.

Then, of course, there is the temperature-controlled mortuary to house dead bodies and for undertakers to prepare bodies for interment or cremation.

The funeral home cannot be easily converted back into a residential home and, even it could, there simply aren’t a lot of buyers interested in living in a former funeral home.

Are you a strong applicant?

Allow us to properly prepare your application and highlight your strength as a borrower so you can avoid getting declined.

Call 1300 889 743 or complete our free assessment form today.

To give you an idea of what banks look for, read on.

Do you have experience?

It’s very difficult to get funding for a funeral unless you already own one and have extensive experience.

Most lenders tend to take a “resume style” approach when considering applications.

They will want to know whether you have a strong track record in running a business in the same industry so they can be confident that you can run a profitable business and won’t default on your loan.

If this is your first funeral home purchase, banks will scrutinise every aspect of your application and will undertake a yearly review.

Present strong financials

As a general rule, the bank will want to see the vendor’s (the seller of the funder parlour) last 2 years balance sheets showing profit and loss as well as assets and liabilities.

The lender may also ask for the last 2 years Australian Taxation Office (ATO) tax portals and Business Activity Statements (BAS) to show that the current operators have been meeting their tax obligations.

Essentially, the bank wants to know that you’re buying into a funeral home with good business fundamentals.

As a general rule, the business turnover is 1.5 to 2 times the proposed interest expenses of the business loan. This is known as the ‘serviceability ratio’.

Present a good business plan

Sit down with your accountant and come up with a business plan that details:

• Cash flow forecasts.
• Who will be running the funeral home and why they’re qualified.
• How many staff you will be hiring.
• SWOT analysis including competitor research.
• Your marketing strategy.

What is a SWOT analysis?

SWOT is the acronym for strengths, weaknesses, opportunities and threats and is an important tool that accountants use when determining the viability of a business venture.

For example, a strength may be that you’re buying a well-established funeral parlour with a strong business and referral book.

A weakness is that you’re competing with large-scale competitors with an established brand in the local area, like Guardian Funerals and Simplicity Funerals.

Basically, you have to show the banks that you have a funeral director in place and the financial backing to run a successful venture.

Should I purchase the property on a WIWO basis?

WIWO or “walk-in-walk-out” means that you are purchasing the property “as is”.

The benefits

• You won’t need to purchase new equipment or hire new staff to run the business.
• The fewer upfront costs you need to outlay presents less risk to the lender.
• A WIWO purchase allows for a quick sale and you can usually purchase the home’s existing equipment under market value.

The drawbacks

• No handover with the previous owner.
• No time to evaluate machinery and equipment that may need to be repaired or replaced.
• Less time to undertake due diligence on the location and the local market.

The key is to reduce your risk is to work with a commercial solicitor that has experience with funeral homes.

They can help you create a Heads of Agreement before the Contract of Sale detailing all items and any stock included in the sale.

You then have the right to pull out of the deal with your deposit should you find that equipment is missing from the funeral parlour.

Before you get to that point, you should consider working with a buyers agent that has undertaken initial due diligence on the property and then undertake your own private valuation.

It can cost a few thousand dollars to undertake these checks but it’s worth to buy a a mortuary that will actually turn a profit.

Ask the owner why they’re selling

Funeral businesses operate within a small market and are faster to be affected by poor management compared to other commercial enterprises, making them riskier ventures.

A simple question to ask the owner before purchasing is why they are selling.

It may simply be that they’re looking to retire but don’t be surprised to find that the business or the vendor is in financial trouble.

Check their last 2-3 years financials with help from an accountant to ensure that the business is profitable.

With a good business plan, you may be able to make improvements to the operation.

At the very least, desperate sellers put you in a better position to negotiate on the asking price.

Get financial and legal advice

Before considering getting into the funeral parlour sector, be sure to get independent financial and legal advice first.

Most of the time, initial consultations are free for accountants, financial advisers and lawyers but even if you pay a few thousand for these professionals you can avoid common traps and they can actually help you save money in the long run.

For example, an accountant can help you set up an entity structure that is more profitable for your situation

Meanwhile, a specialist solicitor can help ensure the Contract of Sale is in your best interest.

How to make an offer on a funeral home

When searching for commercial real estate to purchase, price does matter but the conditions of the sale should also form a big part of your decision.

For example, if a certain amount of inventory isn’t made available or certain maintenance or repair issues aren’t resolved, then the purchase shouldn’t go ahead.

A simple letter of offer or Heads of Agreement that spells out your intentions is a helpful document to have prior to the Contract of Sale.

Along with your 5% deposit, it acts as a draft of the contract to come.

Isn’t this risky? Not necessarily.

A commercial buyers agent or business broker can help you to draft up the Heads of Agreement and by having a formal agreement between you and the vendor, the agent can take that property off the market.

It gives you breathing space to undertake your due diligence.

If certain conditions aren’t met, such as the landlord not extending the lease because it’s a little too short for you to qualify for finance, you have the power to pull out of the deal.

Your deposit is totally refundable!

When can I expect to reach settlement?

Like other commercial properties, settlement on a funeral home usually takes around 45-60 days.

Do I need certain permits to run a funeral parlour?

Pre-need funerals are regulated at a state level through such acts as the Funeral Funds Act 1979 (NSW) and Funeral Acts 2006 (VIC).

There are also public health act laws that regulate the disposal of the deceased.

The funeral director and embalmer industry itself is unregulated but ADFA suggests that operators undertake some training in order to improve their skills.

Courses available under the Australian Funeral Directors Association (AFDA) National Funeral Services Training package include:

• Certificate III in Funeral Operations.
• Certificate IV in Funeral Services.
• Certificate III in Cemetery and Crematorium Operations.
• Certificate IV in Embalming.
• Diploma of Mortuary Management.

Apart from upskilling, having qualified staff is also good for branding and marketing.

Speak with an expert

Have a handover period when you purchase the funeral parlour from the previous leaseholder.

If you’re purchasing the leasehold from the landlord, ask them for advice.

In most circumstances, they’ll offer help because they too want you to be successful.

You might want to also consider becoming a member of the ADFA, a professional body that represents funeral home professionals and suppliers.

They can provide all of the education and support you’ll need to run your commercial investment.

Similarly, Colliers International are business brokers with exceptional experience when it comes to buying and selling funeral homes.

Need a funeral parlour commercial loan?

Call us on 1300 889 743 or complete our free assessment form to discover if you qualify.