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Financing options can help home improvement contractors make more money
Research shows that more than 50 percent of all home improvement projects over $5,000 require financing, according to the Certified Contractors Network . When families experience a home emergency, such as a flooded bathroom, burst pipes or a broken heater in February, the need for immediate, big-ticket repairs can make cash payments a serious challenge. “People need an immediate fix,” explains Alberto Caballero, president at AC Fast Solutions in Florida. “Very few are able to pay cash for the full service required.” With that in mind, offering financing is the perfect way for contractors to boost their revenue stream.
When used as part of a sales and marketing strategy, making more financing options available is an easy way to help attract more customers, build a loyal customer base and obtain more business from an untapped segment. If you don’t currently offer financing, or you’re experiencing too many declines with your lender, perhaps you should consider the two-tiered financing model described below.
Using a tiered financing program increases approval rates
The most successful contractors take a tiered approach, including financial service providers who offer prime lending options, as well as a provider that facilitates second look financing.
Prime financing providers approve customers with great to excellent credit scores, and typically offer great, low-payment terms and approvals. The major financial institutions offering prime retail financing include Enerbank, Synchrony Financial and Wells Fargo, and their services enable contractors to leverage “low-interest, low-down payment” marketing messages to attract more customers.
However, when a customer cannot qualify for credit from a prime lender, a second look financing provider can help to save the sale and get the customer the home improvement service they need. This is particularly valuable because approximately half of the American population have credit scores ranging from “fair” to “good,” meaning a large segment of potential customers could be left out. While others have a great credit score and get approved by a primary lender, when many companies have customers with less-than-ideal credit, that’s when they offer second look financing. At Fortiva Retail Credit, for example, we have been able to accept 25 percent to 50 percent of customers who had initially been declined by a prime lender. This is because we can offer financing to customers with FICO scores as low as 550. We use an underwriting system that allows us to look at data other than just a FICO score to gain better insight into a person’s ability to pay — rather than condemning them due to a few credit hiccups. “Some clients have good credit scores and get approved by my primary lender, but many of my clients do not have good credit,” Caballero explains. “That’s when we offer Fortiva.”
Letting them know that you offer multiple financing options is a great way to increase long-term customer loyalty.
To offer a concrete example of a tiered financing program at work, let’s consider a family whose kitchen cabinets have worn down to their last days. Their local hardware store is offering a great low-interest, zero money down deal for cabinets, complete with installation. However, upon applying for the in-store credit, they find that they do not qualify in large part due to hits to their credit suffered during the recession. To help save the sale, the salesman suggests that they apply to the store’s second look option, and they are approved within 10 seconds due to Fortiva Retail Credit’s paperless, “instant decisioning” application process.
The benefit of having both prime and second look financing is having more to offer to a wider customer base. Prime financing providers can offer deals that are great to bring customers into the door, yet when they decline a customer, a good second look financing solution will still accept many of those declined. Essentially, this saves sales that would have been lost.
More financing approvals increase customer loyalty, repeat business, referrals
Whether a customer needs a home improvement repair or renovation, letting them know that you offer multiple financing options is a great way to increase long-term customer loyalty. Knowing there is a monthly payment option available for larger ticket improvement projects like kitchens and bathrooms can help reduce stress around overall sticker price. Homeowners can then focus more on maintaining proper care of their home repairs to ensure small issues do not snowball into much larger ones. This helps to improve their buying experience with your business. It also helps you to close the sale faster and start the project sooner because the approval is already in place. The result is a happy, loyal customer who will seek you out for future projects and refer you to family and friends who might have a similar need.
The bottom line is that offering multiple financing options provides an easy way to set your home improvement business up for significant growth. Such solutions allow you to increase close ratios, average ticket prices, revenue and overall profitability. If you employ commission-based salespeople, financing also helps them make more money, thus reducing turnover expense while creating higher job satisfaction. All in all, it’s an easy solution to add the right numbers to your topline with minimal effort towards implementation.
Michael Fredricks is the senior vice president of Business Development for Fortiva Retail Credit. For more information, contact him at 770/828-1001 or [email protected].