By Stephanie Castagnier Dunn, head of SBA lending, Leader Bank
For more than 25 years, I have had the privilege of financing funeral homes and serving funeral professionals across the country. One thing I have learned is that this profession is unlike almost any other. Funeral businesses are often built over generations, deeply rooted in their communities, and transferred from one owner to the next with a tremendous sense of responsibility and legacy.
That is why changes to Small Business Administration lending rules matter so much to our profession.
On Oct. 1, new SBA rules take effect that will change how certain business acquisitions, partner buyouts and expansion transactions are structured. The good news is important: The standard 10% equity requirement for a straightforward business acquisition has not changed. SBA financing remains one of the most powerful tools available to help funeral professionals acquire, expand and transition ownership of funeral homes.
But several of the rules surrounding that 10% have changed—and understanding them before structuring a transaction will be critical.
Six Changes Funeral Professionals Should Know
- Every acquisition now needs to fit the right category.
A straightforward purchase remains the default, but expansions, partner buyouts and employee-ownership transactions have their own requirements. This matters in the funeral profession, where transactions frequently involve family members, existing operators, partners or owners acquiring additional locations. - Debt-service coverage requirements are tighter.
Most acquisitions will need to demonstrate at least 1.25x historical debt-service coverage, generally based on the prior year or a two-year average. Projections alone can no longer bridge the gap. Certain qualifying expansions may use a 1.15x threshold.
For funeral home buyers, this puts even greater importance on understanding the historical cash flow of the business, not simply what a buyer believes the business can produce after closing.
- Partner buyouts have new rules.
Outside investors generally must remain below 50% ownership and cannot become the largest owner. Buyouts generally begin with a 10% equity requirement, although SBA rules provide circumstances where that requirement may be waived based on factors such as liquidity, working capital and net worth.
This could have a meaningful impact on succession planning for funeral businesses with multiple shareholders or family members.
- The zero-down expansion carve-out is gone.
Funeral operators acquiring another location as an expansion should no longer assume the transaction can automatically be completed without an equity contribution. Qualifying expansions generally begin with a 10% equity requirement, although that requirement may be waived when the transaction meets the applicable criteria. - Seller financing and investor equity have greater limitations.
Seller debt, standby debt and investor equity combined generally cannot account for more than half of the required equity injection. Seller financing can still be an extremely useful tool, particularly in funeral home transitions, but it needs to be structured correctly from the beginning. - Larger transactions face a new Quality of Earnings requirement.
For straight business acquisitions and expansions with a business purchase price of $3 million or more, excluding real estate, a Quality of Earnings report will be required. Partner buyouts are exempt.
This is particularly relevant in funeral home acquisitions, where a transaction may include substantial real estate. Buyers and sellers need to understand how the purchase price is allocated and whether the business portion of the transaction crosses the QOE threshold.
What This Means for the Funeral Profession
I don’t view these changes as a reason to step away from SBA financing. Quite the opposite.
There continues to be an enormous opportunity to finance the next generation of funeral home ownership. Independent operators are expanding while longtime owners are considering succession. Younger funeral professionals are looking for a path from employee to owner. And well-structured SBA financing can help make those transitions possible without requiring the buyer to have millions of dollars of personal capital.
What has changed is the importance of getting the structure right before a deal reaches underwriting.
After decades of financing funeral homes, I believe the best lending relationships begin long before an application is submitted. A lender who understands the funeral profession can look at the transaction, the historical cash flow, real estate, goodwill, seller financing and ownership structure and help determine the right path before the buyer and seller spend months and significant money pursuing a structure that will not work.
For funeral professionals considering an acquisition, expansion, partner buyout or succession plan, my advice is simple: Bring your SBA lender into the conversation early.
The rules may be changing Oct. 1. The opportunity to own, grow and preserve the legacy of an independent funeral business is not.
Stephanie Castagnier Dunn is head of SBA lending at Leader Bank and has spent more than 25 years serving and financing the funeral profession. She is a nationally recognized SBA lending executive and recipient of the 2025 Coleman SBA Lending Executive of the Year award.
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