Let’s jump right to it. Offering financing to your customers can be a crucial component in increasing your sales. It can open your business up to more job opportunities, larger projects, and ultimately makes your business a one-stop-shop from start to finish for any homeowner. But offering consumer financing should be done carefully, because not all contractor financing programs are created equal.
See some of the things we recommend to consider when you compare contractor financing programs.
This is a big one. Depending on the financing company you are researching, they all have different models on how they make their money. Some contractor financing programs will charge the contractor a percentage of the loan amount taken by their client. Others will charge a subscription fee to be a part of their program (whether you are sending them business or not). Some will do a combination of both. There are however, free options in the marketplace, and we recommend evaluating both free and paid options to find the best one for your business.
Make sure with any contractor financing program that you consider, that you are not in any way liable for your clients loan. We also do not recommend lending your own money or carrying the note on your project, simply because of the added risk.
3. Interest Rates
This is an important one to consider because it will affect the attractiveness of your offer. If the consumer financing program you are using is offering your clients a 17%+ APR on financing, the project becomes less economical for them. Offering high interest rate loans essentially carry the same offer as a credit card which most consumers already have. This makes offering this type of financing option a somewhat of a waste of effort. 0% APR offers should also be assessed carefully. Banks make their money on interest, so when you see 0% APR you should ask yourself who is really paying the bank. The answer if you. 0% offers are usually combined with some type of contractor fee to make sure banks get their money up front.
4. Paperwork & process
This is a smaller point to consider, but something to be considered nonetheless. Some contractor financing programs require heavy paperwork, or time consuming applications processes. If you want to stay out of the paperwork, verification, and uploading documents activities, we recommend finding an online solution that asks the consumer to complete those tasks, and doesn’t require anything from the contractor.
5. Restrictions on what funds can be used for
Some lenders are very specific on what loan proceeds may and may not be used for. As an example a consumer can get a loan for a swimming pool construction, however it is not approved to use any of those funds on landscaping (which can be harder for banks to underwrite.) The problem here is that most consumers will construct a pool and make necessary landscaping changes at the same time. Loan programs with strict guidelines are best to be avoided for the best home improvement experience for both client and contractor.
6. Contractor restrictions to join financing programs
Not all contractor financing programs will accept any contractor. Many programs have thresholds contractors must meet in order to join the contractor financing program. Some will require a minimum number of years in business, while others require a minimum dollar amount in sales. Some contractor programs will even do background checks and license verification in order to join. This may not be a problem for bigger businesses who have been around for some time, but for a newer business it can be a restriction to offering financing with some companies.
7. Staged funding
Watch out for this. Some contractor financing programs will distribute funds to the contractor in stages, and only after certain checkpoints have been met, and verified by the homeowner. This adds a whole other headache of sending in photos of stages of your project to verify you are on track. We recommend avoiding this option if possible.
Want to offer financing to your customers?
See the benefits of joining our contractor financing program below.
FinanceMyProject Contractor Financing Program
- No cost to the contractor
- No contractor liability for the loan
- Customer can have funds as soon as the next business day.
- Customers pay you in cash, avoiding credit card transaction fees
- No paperwork, or headaches whatsoever. Consumer works directly with lenders.
- Setup is quick and easy (must have website)
- Free marketing collateral for website and print
- Instant answers allowing you to see if someone qualifies on the spot and can close the deal.
- No contractor thresholds to be met in order to join
- No restrictions on project type or how funds are used
Join our contractor financing program today!