You’re a funeral home or cemetery owner/operator and you are in the final stages of planning that 2025 business budget.  If you have loans for livery vehicles or building improvements that are either adjustable or coming due in 2025 what can you reasonably expect for interest rates on those loans going forward?

As of today when I write this article the Federal Funds Rate, the rate banks borrow money from the federal government at and banks use as a base when working on their interest rate margins, sits at the 4.50-4.75% rate.  That rate is down from a 5.25-5.50% rate earlier in 2024.

Part of the reason that rate is down is that those who fix the Federal Funds Rate have had the mindset that inflation is coming under control.  However, just last week one of those policy makers who help set the Federal Funds Rate, Michelle Bowman, questioned if inflation is under control and made the point in this article from Reuters that interest rates may be higher for longer.

To that end, Bowman made this statement in that article, “I would prefer to proceed cautiously in bringing the policy rate down to better assess how far we are from the end point, while recognizing that we have not yet achieved our inflation goal and closely watching the evolution of the labor market.”

Tom Anderson
Funeral Director Daily

Bowman also made this point which infers that, all things being equal, interest rates may continue to be higher.  Here’s what the article said about that inference, “. . .she believes the neutral policy rate – the level of borrowing costs that neither bolsters nor brakes economic growth – is much higher that it was before the COVID pandemic, “and therefore we may be closer to a neutral policy stance than we currently think.”

So, at least from this article I think that it would be wise to budget for levels of our current rates for 2025.  If one budgets for that amount they will probably be safe on the high side for 2025.  And, if the rates do tick down, you then have some extra money in the bank.

When I did my budgeting on interest, and other items, I always preferred to over-budget rather than under-budget.  That way, if I was wrong, it was to my favor and I saved some from my budget numbers rather than being wrong on the other side and having to figure out how to plug the budget hole.

Prime Rate — The Prime Rate as published by the Wall Street Journal sits at 7.75% today.  By definition the Prime Rate is the rate that financial institutions will give their most creditworthy customers at any given time.  Prime Rate is not a national rate and will vary from bank to bank.

Here’s a historical chart of the JP Morgan Prime Rate from 1983 until today.  Their Prime Rate sits at 7.75% today but was as low as 3.25% in March 2020 before the Federal Funds Rates were raised to try to put a stop to inflationary costs.

Related Information —  Sometimes it is interesting to look at what public companies are paying for credit and at least use that as a relative data point when searching out your own credit terms.  While there are no two borrowing situations exactly alike, such as some with physical collateral and some offering no collateral and differing maturity lengths of the debt, the rates and terms given are great points to know when talking with your local banker.  In September both Service Corporation International and Matthews International closed new debt offerings.  You can read about those from company press releases here:

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Securing the Best Business Loan Rates: Essential Tips for Funeral Directors

As a funeral home owner, navigating the financial landscape is key to ensuring long-term success. One of the most pressing concerns for many in the industry is securing favorable loan terms, especially as interest rates fluctuate. As we move towards the end of 2024, Live Oak Bank shares valuable insights into the lending process.

Building Strong Relationships with Banks

A central theme in the discussion was the importance of cultivating long-term relationships with financial institutions. As your funeral business grows, transitioning from SBA loans to more traditional financing often requires deeper, more exclusive connections with a single bank. While you may not be guaranteed the lowest rates, establishing a strong relationship with your bank can give you access to better loan pricing, tailored advice, and greater flexibility in managing loan terms.

When a bank has a holistic view of your business—including operating accounts, savings, and a line of credit—they’re more likely to assess your financial health comprehensively. This trust, loyalty, and proximity to the bank build a foundation that might result in more favorable rates as you graduate from smaller SBA loans to larger, traditional loans. By integrating all your financial services with one bank, you demonstrate your commitment and financial stability, which can positively influence how banks price their loans for you.

The Role of Financial Preparedness

Beyond relationships, financial preparedness plays a significant role in determining your loan rates. Lenders evaluate several aspects of your business’s financial health, including cash flow strength, personal credit, and liquidity. The cleaner and more organized your financial records, the easier it is for the bank to identify your strengths and assess your risk accurately. This transparency can lead to better loan pricing, especially when cash flow trends are strong and demonstrate a stable financial trajectory.

Personal credit is also a critical component in securing favorable rates. While cash flow gives banks insight into your business operations, personal credit represents the individual decision-maker behind the company. Maintaining a strong personal credit score, showing good savings, and having liquidity on your personal balance sheet can reassure the bank of your financial discipline and risk management. These factors collectively help reduce the perceived risk to the lender, potentially translating to more attractive loan terms.

Importance of a Business Plan

For many funeral directors, the idea of creating a business plan can feel overwhelming, especially when immediate results aren’t apparent. However, a business plan serves as a strategic tool, guiding your decisions and shaping the future of your business. While the document itself may not deliver immediate benefits, the process of crafting it forces you to clarify your goals, identify your target market, and refine your marketing approach.

A thorough business plan also demonstrates to lenders that you understand your market, pricing expectations, and financial outlook. This strategic clarity can boost a lender’s confidence in your business, further enhancing your chances of securing the best possible loan terms.

If buying or selling a business is part of your business plan, check out Live Oak Bank’s free Guide to Ownership Transitions. 

Conclusion

As funeral directors prepare for 2025, obtaining favorable loan rates is critical to ensuring sustainable business growth. Building a long-term, committed relationship with a bank, maintaining strong personal and business financial health, and investing time in developing a clear business strategy are essential steps in achieving this goal. By demonstrating financial preparedness and cultivating trust with lenders, funeral directors can position themselves for success, securing the best loan rates that support the long-term growth and stability of their businesses.

For more information on Live Oak’s products and services contact Andrew Kennedy, VP of Funeral Home and Cemetery lending, at andrew.kennedy@liveoak.bank.