How much funeral home can I afford? Maximum price calculator
Most buyers start with an asking price and ask whether it works. Lenders start with cash flow and ask how much debt it can carry. This calculator takes the lender’s view and solves for the highest price the earnings support at the structure you choose.
Maximum supportable purchase price
Works backward from cash flow to the highest price a lender’s coverage test would allow. Defaults are illustrative placeholders; lender policies vary.
Used only when the note is not on standby.
Used only when the note is not on standby.
Educational estimate only. Not an appraisal, valuation opinion, or loan approval.
How to use the funeral home affordability calculator
- Enter the cash flow. Enter normalized SDE, a market salary for the owner-operator, and an annual capex reserve.
- Set the lender test. Enter the target debt service coverage ratio, the bank loan rate, and the term.
- Describe the structure. Enter buyer equity and the seller note as percentages of price and whether the note is on full standby; add the note rate and term if it is not.
- Read the ceiling. Read the maximum supportable price, the loan amount, and annual debt service.
What the calculator does
It subtracts a market salary for the owner-operator and an annual capex reserve from normalized SDE to find cash available for debt service, then divides by your target coverage ratio to get the most you can pay in annual debt service. Each dollar of price is financed by equity, a seller note, and a bank loan in the shares you enter. Using the standard loan payment formula, the calculator finds the annual payment per dollar of price and divides it into the maximum debt service. A seller note on full standby adds no payment, so it raises the supportable price.
How to choose the inputs
Use SDE after add-backs a lender will accept, and use the salary a lender would expect to pay a licensed funeral director in charge, not what the seller drew. Under SBA SOP 50 10 8.1, the minimum debt service coverage for an initial acquisition is 1.25:1, equity injection is at least 10%, and a seller note counts toward equity only on full standby for the term of the 7(a) loan, for no more than half the injection. Our guide to SBA loans for buying a funeral home walks through those rules. On SBA deals priced at $3 million or more, the SOP also requires a quality of earnings (QoE) review, and the lender must use QoE earnings for coverage. Conventional lenders set their own terms.
How buyers, sellers, and lenders use the result
Buyers use it to set a walk-away number before making an offer. If the asking price is above it, the gap must come from more equity, a longer seller note standby, or a lower price. Sellers can use it to see whether their asking price will finance for the kind of buyer they expect, such as a licensed director buying a first firm. Lenders run the same check, and SBA rules also cap total debt at the independent business valuation, so a price above that valuation needs more equity no matter what coverage shows. Run the calculator again with a higher rate or lower SDE to see how much room the deal has if conditions change before closing.
What it leaves out
The model uses one rate and one term for the bank loan. If real estate is included, that portion may amortize over a longer term, which raises the supportable price; the acquisition loan and DSCR calculator splits the two. Closing costs, guarantee fees, working capital, and rate changes on variable loans are not included. The answer is a debt ceiling, not a fair price. Read what it costs to buy a funeral home for the full budget, and treat every default as a placeholder.
Related reading
Frequently asked questions
How do lenders decide how much I can borrow to buy a funeral home?
They start with normalized earnings, subtract a fair salary for the operator and a capital reserve, and compare what is left with annual loan payments. For SBA change-of-ownership loans, SOP 50 10 8.1 sets 1.25:1 as the minimum coverage for most transaction types. Each lender can be stricter.
Why does a seller note on full standby raise the price I can afford?
Because a note on full standby takes no principal or interest payments while the bank loan is outstanding, so it adds nothing to the debt service a lender tests. The seller is still owed the money later. Under SBA rules, that standby lasts for the term of the 7(a) loan.
What owner salary should I enter?
Use the cost of hiring a licensed funeral director in charge to run the firm in your market, including payroll taxes and benefits. Lenders usually test cash flow as if the owner were paid a market wage, even if you plan to draw less in the first years.
Is the maximum supportable price what I should offer?
No. It is the most the cash flow can carry at your structure, not a measure of value. A sensible offer reflects diligence findings, preneed funding, facility condition, and competing buyers. Paying the maximum also leaves no cushion if calls dip in the first year after closing.