Do you offer financing?
With rates at an all-time low, financing remodel and restoration jobs are becoming increasingly popular. As a contractor, have you taken advantage of this? Some are torn on the topic, seeing it go both ways. The customer technically does not have the money, and you end up getting paid through a third party. However, it secures a sale that otherwise would have slipped. Let’s dive in.
What is financing
This is the ability of a homeowner to pay for a home improvement job without having the actual cash. Many people choose to finance when they may be in a good place in life, but just don’t have the physical cash. Others may be looking to leverage the value of their home to increase that value down the road. Financing gives a homeowner the ability to take on a large remodeling job without having to fork over an enormous amount up front. You could even argue that financing offers “stability”, knowing that you owe a certain amount each month for the loan. Financing can happen without or with the contractor involved. Without, means that the homeowner has secured a load on their own. With, means that the contractor is involved, and is usually paid directly by the lending company.
How it works
Financing typically happens by contacting a lending company. There are hundreds of them, if not thousands, so you can usually shop around. This is most often done by the customer. They do some research, fill out some basic information and the lending companies come calling. If approved, a rate is established and a contract is signed. The homeowner then has the money to spend on a remodeling job. This is the route taken if the homeowner chooses not to finance through you. In fact, you may not even know the check you’re cashing is coming from a financing company.
Financing through a contractor
If you choose to provide financing, you become somewhat of a liaison between the lending company and the customer. This can be helpful when closing leads. During the sales process, an estimate is typically written up. On that estimate, if you provide financing, you can lay out options for payment. Rather than looking at the total, the customer can look at payment options, reducing sticker shock. Say a kitchen remodel is going to cost $20,000. The customer can either pay that, or they can pay around $300/month for five years. The smaller number is far more appealing and seems more realistic to someone who might be strapped for cash. Most often, these financing options are built into your proposals but are technically offered by third-party lending companies. It is rare for a contractor to offer his or her own financing.
There are a couple of things to note here. If you partner with a lending company, offering to finance on their behalf, you’ll typically be paid by them, not the customer. You also may end up being paid in installments. This offers some security, as long as the lending company is reputable. You know you’ll get your money.
How would I implement this in my estimates
Usually, when you include financing in your estimates, you have some kind of partnership with a third party lender. You are acting as somewhat of a vendor, selling their financing options. This may mean you need to contact a lender and set up an account with them. Alternatively, you may just forward on your customer information to the lender, simply advertising that you offer lending. Either option presents itself in a manner that gives the customer easy access to lending, though. Using the former, you may get a kickback from the lender in some way, that is the benefit as signing up as a vendor with them.
As you can see, there are some pros and cons to lending, and opinions on it can vary. If you are looking to close more deals, and offer the customer more payment options, lending is a great way to do so. Alternatively, if the client doesn’t have the cash to move forward, do you really want to bring them on as a customer?
What do you think about lending? Will you implement and offer to your customers? Do you already offer lending?