Selecting a Financing Intermediary
Whether financing a funeral home purchase or refinancing current debt, borrowers are determined to finance with terms their business can support. Although many borrowers go it on their own to arrange financing, they soon encounter challenges they hadn’t anticipated.
For banks, lending to funeral homes is a niche business. Many banks are unfamiliar with the funeral home industry. Non-bank lenders have arisen to fill this gap in the lending market, but not all of them are reliable. Some non-bank lenders have good business practices, some do not. Some have a clear fee structure, others are less forthcoming about what they will charge you.
Under these conditions lenders tend to have the upper hand in the negotiation. Borrowers often find themselves conceding to high interest rates and onerous terms.
In this market it’s valuable to have someone on your side. A competent intermediary will be familiar with lending to funeral homes, will steer you to reliable lenders and negotiate a package that your business can cover.
The right loan can be the difference between success and failure in the funeral home business. Once a funeral home owner came to us who had arranged his own financing in the past. He had owned his funeral home for about five years and had gotten his financing from a specialty financing company. The debt load was threatening to put him out of business. We were able to help this owner refinance and get a very good deal compared to what he had before.
What a lending intermediary does
- Determines the size and term of loan you need based on the amount of cash flow your business has available to service debt.
- Evaluates your background, credit history, and available collateral. Works with you and your CPA to prepare your financial projections. Helps you assemble your loan documents.
- Finds and contacts potential lenders, introduces your package to them.
- Negotiates interest rate, length of loan and other terms.
- Works with all parties to prepare and close the loan.
How an intermediary is paid
The standard industry fee charged by an intermediary for brokering a loan is one percent of the loan amount paid at closing. This is a success-based fee and if your loan doesn’t close then you should not owe anything to the intermediary. In some cases the borrower pays the fee and in other cases the lender pays the intermediary in the form of a referral fee.
It's possible that the lender won't disclose to you that they are paying a referral fee. In this situation the intermediary may try to charge a fee both to you and the lender. Beware this "double dipping." Direct lenders don't like it and neither will you since it could put you in a short cash position after closing. Ask enough questions when you interview an intermediary to fully understand how the fees will be paid.
Reasons to use an intermediary
You may be questioning the need for an intermediary. "Can’t I do this myself?" "Is it necessary to pay a percentage of the loan to a consultant or broker?"
Competent intermediaries will more than make up for the fee you pay by getting you a better loan with a lower interest rate and favorable terms. Reasons to use an intermediary include:
- Experience - Like you, competent intermediaries have invested years to become a specialist in their field. A professional intermediary brings an understanding of the lending process and the market for funeral home business loans. Your intermediary can help you package your application, work with you on the technical aspects of the loan, and resolve accounting, legal and tax issues.
- Objectivity - You have a big emotional stake in the success of your business. It’s hard to separate issues from emotions when you are close to a situation. An intermediary can maintain this separation and stay focused on resolving the issues that arise in the course of applying for a loan.
- Knowledge of lenders - Just as you are an expert in the needs of your local funeral home customers, an intermediary that specializes in funeral industry financing knows who the best lenders are and how to package your application for the best possible results.
- Skill at negotiations - It’s often difficult to negotiate a deal for yourself when you are not used to negotiating. Intermediaries negotiate deals regularly and know what types of responses to expect and how to read them. It is in the best interest of borrowers to have someone negotiating on their behalf that is experienced at negotiating the best terms and rates. And because the intermediary can’t legally commit for you, you will have more flexibility because the intermediary has to check with you before agreeing to anything.
What to look for in an intermediary
While a professional, experienced intermediary can add tremendous value to the loan transaction, an ill-informed, inexperienced advisor can do more harm than good.
Look for these qualities when seeking an intermediary:
- Professionalism - An intermediary’s reputation can have a profound impact on your ability to qualify for the best loan. Be certain that your intermediary has the required education and experience. The intermediary also must have a solid reputation within the funeral industry.
- Experience - Your intermediary should have a track record of successful funeral home loan transactions.
- Focused effort - This transaction is important to you. You want an intermediary that also takes it seriously.
- Senior level attention - Avoid an intermediary who will hand off your work to a junior person on the staff. Find an intermediary who is anxious enough for your business to devote a senior person to the project.
- Sensitivity to your objectives - A competent intermediary will bring a wealth of experience to the table. A good intermediary will also listen to the client’s specific goals. If the person is truly capable, this careful listening will translate into a customized approach that produces the right loan.