Banking and Death Care

March 20, 2023/Finance, Products, Regulations/

The last ten days or so most of America, and the rest of the civilized world, has wondered about the safety of the banking industry. As this is being written on Friday, March 17, we’ve already seen American banks Silicon Valley Bank (SVB) and Signature Bank closed by regulators and have seen some of the biggest banks work together to prop up America’s 14th largest bank, by assets, First Republic Bank, to keep it from closing.

Those events got me to thinking about the banking and death care business relationships. Every business needs a banking relationship. . . .even if you don’t have to borrow money. There are still bills to be paid and a repository necessary to hold your funds. But, most businesses, funeral homes and cemeteries included, generally need some borrowing power at times too. That’s when your banking relationship can pay big dividends.

Most funeral homes grew from small entrepreneurships in local communities to what they are today. Today they may remain single business entities or they may be larger such as city-wide or regional wide in scope. And of course, we have national or even international death care concerns such as Service Corporation International (SCI) and Park Lawn Corporation.

However, most of these businesses started small and I would contend used community bank resources to grow and fund their businesses. Not so long ago I would guess that most funeral homes used home town banks for their banking relationships. That’s the way it was with me. My banker didn’t totally understand the funeral business, but he understood our asset base, our profit and loss statement, and the standing we had in the community that would, more than likely, lead to continued profitable growth. And, like most small town bankers, he valued and believed in “the people” behind the business. I still believe that the vast majority of independent operators have a relationship with a local bank in today’s world.

Local banks behind local funeral homes is what I believe built death care services to what it is today. As regional and eventually national operators came into being, banking relationships changed also. Many of these death care operators needed more expertise on a regional level.

Then in the mid-1970’s Service Corporation International developed their own preneed insurance program. While I don’t know all of the internal workings of the company at the time, it was not long after that that they founded Provident Services, which according to this article, (was) “designed to provide capital financing to independent funeral homes and cemeteries”.

Tom Anderson
Funeral Director Daily

It is my opinion that Provident Services was formed, at least in part, to be able to put premiums received through the preneed insurance business into higher yielding bank loans. . . higher yields than they could get on treasuries. And, in effect, give greater profitability to their preneed business while at the same time operating a profitable lending enterprise.

The same article also states, “Although the new venture was in competition with banks and other loan institutions of greater financial means, SCI believed that Provident would become a substantial competitor in the sector. Provident’s analysts would be capable of providing a more accurate assessment of funeral home and industry loans due to the company’s close affiliation to the field”.

What I don’t think that SCI realized at this time was the amount of push-back that they would get from small, independent funeral homes that didn’t want to have a banking relationship with a company that they may compete, on the funeral home front, for death care business with. I don’t actually know what has happened with Provident Services, but I do not believe it is still a part of SCI.

One thing that SCI got right with the Provident venture was that they were able to “provide a more accurate assessment of industry loans”. That’s a function of knowing that the funeral and cemetery business does have an asset base, but it is probably more accurate to state that the death care businesses have the ability to borrow on what is known as “cash-flow” rather than simply borrow on “assets”.

So, once local funeral homes moved away from their local bank and looked for other lenders willing to make better financial deals, one of the companies that they do so with is Live Oak Bank. Live Oak Bank was founded in 2008 as a bank that is not traditional. They took a page out of the Provident Services book by really getting to know their customer’s business. As you can see from their website here, in their beginning they took a track of operating in a few specialized areas of business. . . . of which one was funeral home and cemetery businesses.

Finally, in today’s death care world, we are seeing the preneed insurance companies moving into the lending arena also. Probably much like SCI did with Provident Services they see the ability to find higher returns for insurance premium dollars in the world of business loans to funeral homes rather than simply in treasury bills. It also gives these companies another avenue to create a relationship with a funeral provider that may lead to both preneed sales and banking relationships.

So, today a local funeral home is not bound to be tied to his local lender. There are all kinds of options out there — many we didn’t even discuss in this article. Whatever avenue you choose to help you with the banking business make sure you develop a trusting relationship. . . .many businesses have found that it is not always the lowest rate that means the most. . . . it is the ability to have your financer be there when you need them.

Related –– Here is a list of America’s largest banks by asset rank as of December 31, 2022. Notice that those banks mentioned in the above article are ranked as such.