By Ian Seekins, Director of Funeral Home Lending

 

Buying a funeral home is one of the most significant investments you’ll ever make.

 

But securing the right financing? That can feel just as challenging as finding the perfect business to buy.

 

The good news: lenders aren’t a mystery.

 

They use a clear checklist to decide which deals to accept. 

 

And if you understand what lenders look for, you'll be better positioned for approval and can move forward with confidence.

 

In this article, we’ll break down the 5 key areas lenders evaluate when financing funeral homes and how you can position yourself for success.

 

 

1. Strong cash flow

One of the first things lenders want to know is if the funeral home you want to buy can pay for itself. And if the numbers don’t add up, the deal won’t move forward.

 

The key is to show lenders that your business generates enough revenue (after expenses) to comfortably cover your loan payments.

 

There are a couple of ways lenders can measure your cash flow:

  • DSCR: Your DSCR, which stands for your debt service coverage ratio, measures how many times over your business can pay its debt

  • EBITDA: An EBITDA evaluates the business’s earnings before interest, taxes, depreciation, and amortization, and gives lenders a clear picture of the business’s operating performance

By prioritizing your DSCR and EBITDA, you can ensure you're focusing on the right metrics and set yourself up for success.

 

 

2. Your financial profile

Lenders not only want to know if the funeral home you want to purchase is a good investment. They also want to know if you are financially prepared for ownership.

 

So, even if you choose an ideal business to purchase, lenders will still look at your financial profile to see how you manage your finances.

 

When lenders are evaluating your profile, they want to see: 

  • Solid personal credit history 

  • Responsible financial habits 

  • Liquidity (cash or assets you can tap into) 

  • Industry or management experience 

Remember, you don’t have to own a funeral home already to get funding for your purchase. Lenders value seriousness, preparation, and a plan for success – qualities any motivated buyer can demonstrate.

 

 

3. Real estate and financing options

For most funeral home acquisitions, real estate is the biggest collateral consideration.

 

One of the first questions your lender will ask you is whether the property will be included in the sale or held under a lease agreement. Understanding this distinction from the start will help your lender outline the financing options available to you.

 

A purchase with real estate involved may be structured differently than a deal where the facility is leased, and knowing which path you are on will make the process more efficient. 

 

 

4. Continuity and transition planning

Lenders want reassurance that the funeral home will continue to run smoothly after the ownership changes. That is where you need a fully thought-out transition plan ready to go.

 

A strong transition plan shows you’ve come up with answers for key questions like…

  • Will the seller stay on temporarily to help with the transition?

  • Is your staff trained and committed to working for new ownership? 

  • How will you preserve community relationships and goodwill? 

In many cases, lenders also look at how the deal itself is structured. For example, in the funeral profession, it is common for sellers to carry a note of 10-20% of the purchase price, also known as an “owner-carry” arrangement. This reduces the amount of upfront cash needed to close and serves as a non-compete to protect the business.

 

Showing that you have thought through both the transition plan and the deal structure demonstrates stability, which makes lenders more comfortable financing your purchase.

 

 

5. Red flags

While every deal is different, there are some warning signs that lenders will look for.

 

Here are a few: 

  • Overpaying for goodwill (the “name value” of the business) 

  • Unrealistic projections that show massive growth right away 

  • Incomplete or messy financial records 

  • Too much leverage without enough cash invested up front 

By avoiding these warning signs, you will set your deal apart as stronger and more reliable, which will greatly improve your chances of getting approved for financing.

 

 

Move forward with confidence

Finding funding for your funeral home purchase may feel intimidating. However, the process becomes much more manageable when you know what lenders want to see from you and your desired business.

 

Take a big step in the right direction by remembering that lenders want to see:

  • Strong cash flow from the funeral home

  • Responsible financial decisions from you

  • If the real estate is included in the deal

  • Whether you have a thoughtful transition plan

  • How you avoided common red flags

With the right plan, financing isn’t just about numbers. It’s about building a foundation for a thriving business that will serve families for years to come.

 

Ready to work with a lender who can help you move closer to your dream of ownership? Meet with our lending team to discover all the ways we can help you today!