Jan 23, 2017
ASD is excited to be partnering with Live Oak Bank to bring more benefits to ASD clients. Live Oak Bank specializes in lending to funeral homes with a competitive loan product, a dedicated funeral home lending team and the commitment to make quick loan decisions. Click here to learn more about the new partnership.
“Funeral directors that use ASD are more than just our clients. They are partners,” says ASD Vice President and Family-Member Owner, Kevin Czachor. “At ASD, we’re always looking solutions that can help funeral professionals tackle challenges in the business world. We’re enthusiastic about joining with Live O
ak Bank to help funeral directors with their financing needs.”
We are pleased to share this Guest Blog Post from Live Oak Bank that explains how a funeral home credit analysis is performed and what considerations should be made when evaluating your firm’s financial health.
The “5 Cs” of Funeral Home Finance
The changing face of the funeral industry presents both opportunities and challenges to funeral home owners. These changes often require financing, whether there is a need to refinance existing debt, acquire another funeral business, finance a succession, expand or remodel. To determine the risk associated with making a loan, a lender will perform a credit analysis.
Credit analysis is governed by the “5 Cs:” capacity, capital, character, collateral, and condition.
• Capacity (Cash flow): The lender wants to know that your business is able to repay the loan. The business should have sufficient cash flow to support its business expenses and debts comfortably while also providing principals’ salaries sufficient to support personal expenses and debts.
• Capital: Your lender will ask what personal investment you plan to make in the business. Not only does injecting capital decrease the chance of default, but contributing personal assets also indicates that you are willing to take a personal risk for the sake of your business; it shows that you have ‘skin in the game.’
• Character: Lenders need to know the borrower and guarantors are honest and have integrity. Additionally, the lender needs to be confident the applicant has the background, education, industry knowledge and experience required to successfully operate the business.
• Collateral: A lender will consider the value of the business’ assets and the personal assets of the guarantors as a secondary source of repayment. Collateral is an important consideration, but its significance varies depending on the type of loan. A lender will be able to explain the types of collateral needed for your loan.
• Condition: The lender will need to understand the condition of the business, the industry, and the economy, which is why it is important to work with a lender who understands the funeral industry. The lender will want to know how the loan proceeds will be used- working capital, renovations, additional equipment, etc.
By knowing each of the “5 Cs,” you will have a better understanding of what is needed and how to prepare for the loan application process.
Learn more about funeral home financing here.
About The Author
Live Oak Bank
Live Oak Bank is a nationwide bank that provides financial solutions to small businesses, with an unparalleled commitment to service and technology. Live Oak Bank specializes in lending to funeral homes with a competitive loan product, a dedicated funeral home lending team and the commitment to make quick loan decisions. Loan amounts up to $5 million are available, depending on your loan needs.The company has extensive experience lending to selected niche small businesses as a preferred Small Business Association (SBA) lender.