Funeral director business loans and finance

A funeral director's income is steady over a year but awkward over a month. The business commits money on behalf of the family well before it is paid, and the timing of that payment is often outside anyone's control.

• Disbursements paid up front. Crematorium or cemetery fees, celebrant or officiant fees, flowers, press notices and catering are usually paid by the funeral director and recharged on the final account.
• Estates settle slowly. Many families pay once the deceased's bank releases funds or once probate is granted, which can take months on a larger estate.
• State support arrives after the event. Where a family claims help with funeral costs from the government, the payment comes after the funeral and may not cover the full bill.
• Plan-funded funerals. When a funeral is paid for by a prepaid plan, the plan provider pays the funeral director after the service, at the amount set by the plan, which can be tighter than the firm's own price list.
• Winter peaks. Deaths rise in the colder months, so outlay on disbursements, staff overtime and mortuary capacity climbs at the same time as the debtor book lengthens.

Illustration only, with round, hypothetical numbers. A firm conducts 25 funerals a month and pays out an average of £1,200 in third-party costs on each before the account is settled. That is £30,000 of cash leaving the business every month on behalf of families. If the typical account is paid eight weeks after the funeral, around £60,000 is permanently tied up in disbursements alone, before any of the firm's own fee is collected. In a hard winter, with more funerals and slower estates, that figure can grow quickly. A revolving credit facility sized to the winter peak, and repaid as accounts settle, is often a better fit than a fixed loan for this particular need.

Established independent funeral homes with several years of call numbers and filed accounts have the widest choice of lenders, whether they trade as a limited company, a partnership or a sole trader. Family firms passing the business to the next generation, experienced funeral directors buying a neighbouring firm and owners adding a branch are all routine cases, provided the profits cover the new repayments alongside a living for the owners. Lenders look for sector experience in whoever will run the business after the deal. A first-time owner with no funeral background, or a brand-new firm with no call history, will find fewer lenders and should start with our start-up guide.

Security follows the purpose of the borrowing. A hearse, limousine or private ambulance on hire purchase is secured by the vehicle itself, and mortuary refrigeration by the equipment. Revolving credit and unsecured loans for disbursements or refurbishment carry no charge over property but usually need personal guarantees from the owners. Buying a funeral business typically involves a debenture over the company's assets plus guarantees, and some lenders also ask for a charge over the freehold if the premises are included. Buying or refinancing the freehold itself is secured by a legal charge, with any flat above affecting how lenders value it. Our guide to fixed and floating charges explains how a debenture works.

Vehicle and equipment finance is typically arranged within a few days to two weeks of a supplier quote, although a new coachbuilt hearse may have a long build time, so the finance is often approved well before the vehicle arrives. A revolving credit facility or unsecured loan usually takes one to three weeks, which is why it is worth arranging before winter rather than during it. Buying a freehold typically takes six to twelve weeks because of the valuation and legal work. Acquisitions take longest, often a few months, as the lender reviews call numbers, the plan mix, the debtor book and how much goodwill sits with the outgoing owner.

Borrowing to fund disbursements is sensible only if the debtor book is collectable; it will not fix a firm that is writing off too many accounts. Consider asking for a deposit at the arrangement meeting where appropriate, which many firms already do for third-party costs. On acquisitions, over-paying for goodwill that depends on a retiring owner is the classic mistake, so structure part of the price as deferred consideration linked to funeral numbers after completion. Most unsecured and acquisition lending needs personal guarantees from the owners, and a family firm should agree between family members who will give them. If the pressure is a tax bill rather than disbursements, HMRC may agree a Time to Pay arrangement, and our Time to Pay or tax loan guide compares the two.

Several options can reduce or replace a new loan. Owned hearses and limousines can raise cash through asset refinancing, which suits a firm whose fleet is paid off but whose debtor book has lengthened. A firm that owns its premises may get a longer term and lower cost from a secured business loan. On a purchase, asking the seller to defer part of the price reduces the bank borrowing needed; our guide to vendor finance and deferred consideration explains how. And taking a deposit towards third-party costs at the arrangement meeting cuts the disbursement gap without any borrowing at all.