Introduction 

Funeral homes serve as spaces for solace and closure for bereaved families. While they present lucrative investment opportunities, securing a funeral parlour commercial loan can be challenging, as only a select few lenders consider these applications. 

Loan Parameters 

How Much Can You Borrow? 

• Freehold (Purpose-built): Up to 65% of the property value or 105% with a guarantor. 
• Freehold (Converted Residential): Up to 50% of the property value. 
• Leasehold: Up to 50% of going concern valuation by a bank-instructed valuer. 
• Loan Terms: 
• Freehold: Maximum 25 years. 
• Interest-only term: Maximum 3 years. 
• Leasehold: Maximum 5 years. 
• Loans Over $5,000,000: Assessed on a case-by-case basis. 
• Documentation Requirements: Business plan for going concern, including cash flow forecasting. 

Security for the Loan: 

• Mortgage over funeral home (or lease for leasehold). 
• Fixed or floating charge over business assets. 
• Directors’ guarantee. 
• Deed of consent between lessor/lessee and the bank. 
• Low Doc Options: Not available due to the specialized nature of the property. 

Equipment Finance for Funeral Homes 

Specialized Equipment Financing 

Mortgage brokers can assist in qualifying for competitively priced business loans for various funeral home equipment, including: 

• Embalming machines. 
• Hydraulic lifts. 
• Refrigeration systems. 
• Hearses and funeral procession vehicles. 
• Air trays for body transportation. 
• Stainless steel preparation tables. 
• Caskets and urns. 

Assessment Criteria for Funeral Homes 

Risk Assessment and Valuation 

• Specialized Nature: Funeral homes are considered specialized commercial properties, restricting borrowing power. 

Valuation Types: 

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

Considerations in Valuation: 

• Total revenue. 
• Gross margin. 
• Wages for revenue figures. 
• Financial performance analysis. 

Industry and Business Environment: Evaluation of current industry conditions and local competition. 

Converted Residential Properties 

• Commercial Classification: Even if converted from residential properties, funeral homes are considered commercial due to business zoning and specific purpose-built features. 
• Features: Dedicated spaces for wakes, services, viewings, chapels, and mortuaries. 
• Irreversibility: Difficulty in converting back to residential use. 

Experience and Financials 

Funding Challenges and Applicant’s Experience 

• Difficulty in Funding: Challenging to secure funding without prior ownership and industry experience. 
• Lender Scrutiny: Extensive review for first-time funeral home buyers, requiring yearly evaluations. 
• Financial Documentation Required: 
• Vendor’s last 2 years’ balance sheets, profit and loss, assets, and liabilities. 
• Last 2 years’ Australian Taxation Office (ATO) tax portals and Business Activity Statements (BAS). 
• Serviceability Ratio: Business turnover 1.5 to 2 times the proposed interest expenses. 

Business Plan Requirements 

• Components of a Comprehensive Business Plan: 
• Cash flow forecasts. 
• Qualifications of funeral home management. 
• Staffing plans. 
• SWOT analysis with competitor research. 
• Marketing strategy. 

Purchasing Considerations 

WIWO Basis and Risk Management 

WIWO Basis Explained: 

• Purchasing “as is” with existing equipment and staff. 

Benefits: 

• Lower upfront costs. 
• Quick sale with existing equipment. 
• Potential cost savings. 

Drawbacks: 

• Lack of handover. 
• Limited time for due diligence. 
• Potential equipment issues. 

Risk Mitigation: 

• Commercial solicitor assistance. 
• Heads of Agreement detailing items and stock. 
• Working with buyers’ agents for due diligence and private valuation. 

Questioning the Seller: 

• Understanding why the business is for sale. 
• Reviewing financials with an accountant. 
• Negotiating from a position of knowledge. 

Legal and Financial Advisory 

Expert Advice Before and During Purchase 

Pre-purchase Consultation: 

• Seek independent financial and legal advice. 
• Consider initial consultations with accountants, financial advisers, and lawyers. 

Professional Fee Considerations: 

• Initial consultations may be free. 
• Consideration of long-term savings through expert advice. 

Structuring Entity for Profitability: 

• Accountant assistance in setting up a profitable entity structure. 
• Solicitor guidance for favorable Contract of Sale terms. 

Making an Offer and Settlement Process 

Strategic Purchase Decision 

• Conditions of Sale: Consider inventory, maintenance, and repair conditions. 
• Heads of Agreement: Drafting a preliminary agreement. 
• Deposit and Breathing Space: 5% deposit with a draft agreement for due diligence. 
• Risk Mitigation: Commercial buyers’ agents or business brokers assist in drafting agreements and securing breathing space. 
• Refundable Deposit: Deposit refundability if conditions are not met. 
• Settlement Duration: Similar to other commercial properties, usually 45-60 days. 

Permits and Regulatory Compliance 

Regulations for Funeral Parlours 

• State-level Regulations: Pre-need funeral regulations vary by state. 
• Public Health Laws: Govern disposal of deceased. 
• Industry Training Courses: Offered by the Australian Funeral Directors Association (AFDA), including certificates and diplomas. 
• Qualified Staff Importance: Enhances branding and marketing. 

Transition and Industry Support 

Expert Transition and Industry Associations 

• Handover Period: Consider a transition period with the previous leaseholder. 
• Landlord Guidance: Seek advice if purchasing the leasehold from the landlord. 
• Professional Memberships: 
• Consider joining the AFDA for education and support. 
• Colliers International offers expertise in buying and selling funeral homes. 

Conclusion: Informed Decision-Making for a Profound Investment 

Entering the funeral parlour sector requires meticulous planning, financial acumen, and engagement with industry professionals. Navigating the intricacies of funeral parlour commercial loans demands a comprehensive understanding of loan terms, risk assessments, regulatory compliance, and strategic purchasing considerations. With expert advice and due diligence, investors can make informed decisions for a successful venture in this unique and specialized industry.