The majority of Americans finance home improvement projects with credit cards, personal loans or HELOCs. To stay competitive, contractors need to offer financing as an option for homeowners or otherwise risk losing the job to a competitor. Let's discuss how to offer financing. After reading this article you'll know:
- Different types of financing
- How to introduce financing as an option to your customer
- What you need to do differently for financed customers
What types of financing solutions are available?
There are two types of financing solutions home improvement contractors use to offer monthly payments to their customers:
- Dealer Fee Model: The dealer fee model is when a contractor partners with a lender to offer specific loan options. We have an article all about the dealer fee model here, but let's summarize the basics. Once a contractor chooses a lender to partner with, they select a few preset loan offers. In order to offer most of the loans, the contractor pays a dealer fee, or percentage of the loan, back to the lender every time they offer it. This dealer fee acts as a form of risk mitigation and allows the loan to be uniform for everyone it is offered to. However, contractors often cannot collect payment prior to completion of the project, and these sorts of lenders require high FICO scores and have lower approval rates.
- Marketplace Model: The marketplace model allows contractors software which connects their customers to a variety of different lenders with one easy application. To pre-qualify, lenders perform a soft pull on the credit. The customer is then provided with options from many different lenders and can choose which they like the best. The marketplace approach does not rely on any additional fees to the contractor, and gives the customer the most competitive rates on the fair and free open market. (This is how Enhancify works).
How do I introduce Financing as an option to my customers?
Customers have lots of options, but typically buy from the most convenient one. To be more convenient than your competitors, offer a variety of payment options to every customer on every estimate.
Here's an easy way to start the conversation:
"Hey folks, before I put this estimate together, I just wanted to let you know that 50% of my customers pay with cash or check. The other 50% like to finance with an affordable monthly payment. Help me out here-which bucket do you fall into?"
It can be that simple. With this easy-to-ask question, you tell your customer that: 1) You have convenient payment options; 2) A lot of people use financing and it's not uncommon; and 3) You care about what's important to them.
What do I need to do differently when I help my customer get financed?
Dealer Fee Model:
- Likely unable to collect a down payment. Buy materials out of pocket.
- Coordinate with lender and determine if a draw is available
- Take photos and provide paperwork to lender
- Obtain signatures from your customer once the job is complete
- Lender will disperse money only once these are completed
- Collect down payment or security deposit as normal
- Collect final payment once job is completed