Six myths about customer financing of home improvement projects

Editor’s note: Last week, we received an interesting article from Michael Garrity, CEO of the firm Financeit. Here it is. It pertains to the different ways customers finance home improvement projects. Yes, we believe Mr. Garrity has some options for you through his firm, but the article provides some interesting viewpoints on customer (and contractor) reactions to the financing process, regardless of whether you click on the link or not. Mr. Garrity’s bio and contact info is at the end of the piece.

By Michael Garrity

By eliminating the “sticker shock” of the cost of a large home improvement project, customer financing is a proven technique for boosting sales. Broken down into palatable monthly payments, a new roof or major kitchen remodel can be put within reach for budget-conscious consumers.

Home improvement projects often carry hefty price tags and are ripe for financing; the number of contractors offering customer financing is low and mainly limited to big franchises due to the complexity and overhead these systems typically require. However, that was the past, and today is full of new opportunities.

Advances in mobile and cloud-based technology means there’s been a groundswell of new products developed in the last few years that are easy enough for small businesses to implement without a lot of overhead or staff.

We’re breaking down some commonly heard misconceptions around consumer financing for home improvement businesses to help you increase sales and grow your business.

Myth 1. There’s too much paperwork involved
A cumbersome application process that involves reams of paperwork having to be shared back and forth can dissuade the most motivated contractor or customer. The amount of effort required leaves many smaller businesses wondering if the added legwork is really worth it.

This issue is a historic one, from a world run on paper. Today, we operate in a world where web and mobile apps can eliminate paperwork entirely. Customers can now complete an application entirely on their own – whether they’re sitting at their kitchen table or in your showroom.

Myth 2. You should always be selling
Too often contractors and other small businesses take a reactive approach to offering customer financing, mentioning it only when a customer balks at the purchase price. However, the most effective way to roll out a financing program is to lead with the lowest monthly price with every customer, every time.

Pricing in terms of a monthly payment is a much easier way for customers to align the cost of the purchase to their budget. Start with “We can get this done for $176 per month” rather than “You’re likely looking at $10,000 for this project.” This eliminates the sticker shock and lets customers see that a certain project or purchase is workable within their budget. You can always tell them the total cost after they ask.

Myth 3. Processing times will slow down my sale
When a financing application takes days to process, you are leaving the door open for customers to change their mind or find a different provider. That’s always a risk when it takes 2-3 days to get a credit decision from the lender. By moving the entire process online, customers can get an answer instantaneously. This real-time pace essentially stops the shopping process altogether. When customers are comfortable with your services and can afford the monthly payments they’ll be ready to sign.

Myth 4. Offering financing costs too much
A lot of times lenders process point of sale financing as a credit card transaction – leading to hefty transaction fees which can really hurt a contractor’s bottom line. However, not all customer financing services include transaction fees, which means you can extend various types of financing and incentive offers to your customers without having to pay an extra cent yourself.

Myth 5. It’s too awkward to bring up
Not all contractors are comfortable discussing pricing and payment plans with their customers. Some worry about insulting a potential customer by insinuating they need financing. Others may be uncomfortable playing the banker role and telling a customer whether they’ve been approved or not.

There are some simple strategies to alleviate any awkwardness. First, by leading with the monthly payment price every time, you are able to casually introduce the subject without having to directly ask, “Do you need financing?” Next, have payment plan literature available to pass along to interested customers, so you don’t need an advanced degree in accounting to answer any questions. Lastly, a customer-facing mobile or web application goes a long way to let customers discretely get pre-qualified and apply for financing.

Myth 6. Financing is only available for big box stores and enterprises
Point of sale financing has long been an important sales tool for car dealerships and big box stores – but it’s been relatively rare for independent contractors.

However, the cloud, web, and mobile apps are quickly changing that dynamic, making it feasible for small businesses to offer flexible financing and loan programs for their clients and customers. This makes it easier than ever to compete with the big fish, as the competition for home renovations heats up in the spring season.

The great news for today’s contractor is that many of the “myths” of customer financing are relics of an old way of doing business. There’s a world of compelling financing solutions just a click away that can help small business owners close more sales faster and are easy to implement.

Michael Garrity is a 15 year veteran of the financial technology industry, and the CEO and co-founder of Financeit <www.financeitpos.com <http://www.financeitpos.com> >, a platform that enables small business to offer consumer-financing anytime, anywhere. You can find him on Twitter @mgarrity