For most SBA 7(a) funeral home loans, the minimum down payment referred to as an equity injection is 10% of the total project cost. Conventional funeral home loans typically require 20% or more. The exact amount depends on your loan type, the purchase price, and how the deal is structured.
If you are buying a $1.5 million funeral home through an SBA loan, plan to bring at least $150,000 to the table. On a conventional loan, that number rises to $300,000 or higher. We have seen firsthand how many buyers underestimate this figure early in the process which is one of the most common reasons deals stall before they close.
How Much Should You Expect to Put Down?
For most SBA 7(a) funeral home loans, buyers should expect to contribute **at least 10% of the total project cost as their equity injection. Conventional commercial loans generally require 20% to 30% or more, depending on the lender and the overall strength of the transaction.
The exact amount you’ll need depends on several factors, including:
* The total purchase price
* Whether real estate is included
* The amount of goodwill being financed
* Equipment and working capital included in the loan
* The business’s cash flow and debt service coverage
* The overall risk profile of the acquisition
While 10% is the SBA minimum, some transactions may require a larger equity contribution if the lender determines additional risk is involved. Understanding your financing structure early can help you avoid surprises during underwriting.
Conventional Loans: Higher Down, Different Structure
Commercial funeral home loans those not backed by the SBA follow conventional bank standards. In most cases, lenders require 20% to 30% down, and sometimes higher for transactions where goodwill makes up a large portion of the purchase price.
The tradeoff is structure: conventional loans often come with shorter amortization periods but no SBA guarantee fees. For established owners with strong collateral and significant liquidity, a conventional loan can be a cleaner path.
We always advise clients to compare both options before committing. How we structure each path and what drives the choice between them is laid out step by step in our loan process overview.
Can a Seller Note Count Toward Your Down Payment?
Yes in some cases. A seller note is when the seller agrees to carry back a portion of the purchase price rather than receiving the full amount at closing. If structured correctly, the SBA may allow a seller note to count toward the 10% equity injection requirement.
There are conditions: the note typically must be on full standby meaning no payments to the seller for the first two years of the loan term. The bank must also approve the structure before it is factored into the equity calculation.
This is one of the most frequently misunderstood aspects of funeral home acquisition financing. We work directly with buyers to structure these arrangements properly, before anything is committed to in writing.
What Counts as an Acceptable Source of Equity?
Lenders require that all equity funds be fully documented and sourced. The following are generally acceptable:
• Personal savings (bank or investment accounts)
• Proceeds from a business sale or real estate transaction
• Gift funds from immediate family (with a signed gift letter)
• Retirement account distributions (with tax implications considered)
• A properly structured seller note (if SBA-approved)
What is not acceptable: undocumented cash, funds with no paper trail, or money borrowed from another lender to satisfy the equity requirement. We have seen deals fall apart at underwriting because the source of funds could not be verified a completely avoidable outcome. Our loan preparation guide walks through exactly how to organize and document equity before your first lender conversation.
What Happens If You Cannot Meet the Down Payment Minimum?
If you are short on equity, there are a few paths forward none of which involve guessing your way through a loan application.
First, revisit the deal structure. A seller willing to carry a note may reduce the cash you need to bring. Second, evaluate whether the acquisition can be phased buying the business first and the real estate separately later. Third, consider whether a partner or investor could contribute equity in exchange for a stake in the business.
What does not work: hoping the bank will make an exception without a concrete plan. We work with buyers early in the process to identify realistic equity strategies before they commit to a purchase price.
Frequently Asked Questions
What is the minimum down payment for a funeral home loan?
For SBA 7(a) loans, the minimum is 10% of the total project cost. Conventional loans typically require 20% or more. The exact figure depends on the loan type, purchase price, and deal structure.
Can I use a seller note to cover my down payment?
In some cases, yes. A seller note on full standby may count toward the SBA equity injection requirement if the bank approves the structure. This must be arranged before the letter of intent is signed.
Does the down payment have to be all cash?
Not necessarily. Documented assets savings, investment proceeds, gift funds, or a qualifying seller note can all count. The source of every dollar must be fully traceable and documented.
What if I cannot afford the minimum equity injection?
Deal restructuring, a seller note, or a phased acquisition are realistic options worth exploring before ruling out the transaction. We help buyers evaluate these paths early, before any commitments are made.
Does the down payment change based on the loan size?
The percentage stays the same 10% for SBA but the cash required scales with the transaction size. On larger deals, lenders may also require a higher percentage if the debt service coverage ratio is close to the minimum threshold.
Final Thoughts
Down payment requirements are one of the first things buyers need to understand and one of the most commonly misquoted figures in this space. SBA loans start at 10%, conventional loans start at 20%, and seller notes can sometimes bridge the gap when structured correctly. The earlier you understand your equity position, the more control you have over the deal.
| Ready to Move Forward? Talk directly with Matt Manske Senior Loan Officer with 20+ years in funeral home lending. No brokers, no upfront fees, no call centers. Call Matt: 913-343-2357 | funeralhomeloan.com/contact |
