Funeral Home Debt – Is there a Smart way to Borrow? 

Before you need to apply for Funeral Home Funding, a simple calculation will help determine how much you can afford to borrow.

A Funeral Home is like any business; there will be times when you need to prove your worth the risk to a lender.  This is especially true when applying for a loan. Savvy Funeral Directors know the financial well-being of their business before they “need” to take out a loan.

That’s where the debt service coverage ratio (DSCR) comes in.  This calculation shows the financial well-being of your business. It measures how powerful (or weak) your cash flow is.  Cash flow shows whether you have the ability to pay back debt obligations.

Any savings you accumulate helps. But what’s most important is a healthy cash-flow Combined, savings and cash flow increase your chances of qualifying for a loan. On the other hand, when cash is tight, you’re a bigger risk for lenders.   A big question is whether your Home has lots of life insurance assignment claims gumming up your cash flow or if you’re working with a funding company or insurance assignment company.  Assignment funding companies like Trinity Funeral Funding verify and fund insurance claims for funeral homes within a day or so.  Assignment funding converts your receivables into cash.

The DSCR is a useful tool for determining if your business is prepared to pay back a loan even when the unforeseeable happens. Here’s how it works:

DSCR = net operating income ÷ total debt service

For instance, if your net operating income is $40,000 and you’re applying for a loan with an annual debt service of $32,000, the DSCR is 1.25. While the minimum debt service coverage ratio requirement varies among lenders, it generally needs to be 1.25 or higher. A DSCR that is less than 1 represents a negative cash flow, which most lenders are less than thrilled to see.

So using debt wisely is important to all Funeral Homes.  However, a hidden cash flow enemy are life insurance accounts receivable.  Exploring ways to process and collect on your insurance assignment claims is usually a place most funeral homes can improve their cashflow and borrowing power.

Cristina Terc has verified, funded and helped resolve thousands of life insurance assignments for funeral homes and beneficiaries. Life Insurance assignments are tricky, confusing and frustrating. They are also a direct attack on cashflow for every Funeral Home. Slow payments from insurance companies, requests for additional documents cause frustration and a loss of valuable time.  For more information visit http://www.trinityfuneralfunding.com/ or call Cristina at 201-750-1117.