Consumer Financing Guide for Small Businesses

Updated on April 1st, 2022
Consumer Financing Guide for Small Businesses

Consumer financing can be a tricky subject. If you don't know what you're doing, it's easy to get in over your head with debt and interest rates that could send your business into bankruptcy. 

However, consumer financing is an important topic for small businesses that are looking to grow their customer base. When done correctly, consumer financing can promise loads of benefits, including increased service orders and easier customer retention.

In this guide, we will discuss how to use consumer financing as a tool to increase revenue and reduce the need to generate capital internally.

Breaking Down Consumer Financing For Small Businesses

Consumer financing for small businesses is a practice whereby small business owners provide point-of-sale finance options for customers so that they can fund their given payment purchases.

Basically, instead of paying for a service or product upfront, the consumer follows a set of predetermined terms and conditions which indicate how much they pay and for how long.

With consumer financing, a customer does not pay for a good or service all at once, nor are they obligated to seek a third-party provider to cover the cost of their purchase. Small business owners are the ones who facilitate a customer's access to them, either through partnering with a third-party financing company or directly managing it.

In most cases, the latter is not favorable for small businesses. Apart from the fact that most startups and small-scale businesses do not have the financial capital to offer this type of services themselves, having to manage such complex finance plans on your own is time-consuming and will be difficult to marry with your daily operations.

The Characteristics of Consumer Financing

A small business does not need a physical credit terminal or credit administration system to offer this financial solution to customers. Consumer financing can be administered through the software platform and database of a third-party lender. That way, by simply linking it to your website, the creditor assumes the management of consumer repayments.

Customers who opt for point-of-sale consumer financing are expected to pay interest on their purchases. In most cases, the interest rate is higher than what the customer would have been charged had they used their credit card to fund the purchase.

Similarly, depending on the lender, the repayment terms and conditions (like equal monthly payments, installment payments, etc) also tend to be determined directly by the lender. In most cases, they are non-negotiable.

However, that isn't always the case. It depends entirely on the financing party offering financing.

Some third party financing companies do not have elevated interest rates when offering consumer financing to clients.

All in all, you as a small business owner must ensure that the financing programs and payment plans delivered by your third party financing provider are ideal for your customers.

The Main Benefits of Consumer Financing To Small Businesses

As a small business, there are multiple benefits associated with offering consumer financing as a point-of-sale payment plan.

To start, this type of financing option comes across as very attractive to small business customers. Clients like when small businesses put them in charge of their spending and allow for the purchase to be paid off over time.

What's more, it also impacts positively on your ability to retain customers over time. This is because consumer financing enables them to make a purchase now and pay off the balance at their convenience, without any requirements or penalties.

Additionally, consumer financing provides your business with more opportunities for growth due to newly-found access into previously untapped markets; people who are not able to afford paid upfront purchases can still gain access to your services.

Offering consumer financing also helps you to avoid a potentially costly collection issue with your customer if they default on payments. This is because the third-party lender is the one who assumes the risk of non-payment, not you as the small business.

Of course, consumer financing is a great way to meet the demands of customers who cannot access your services because of bad credit scores, credit checks, or anything related to their credit history.

When done the right way, offering financing options to clients can be the cornerstone of your growth strategy throughout your business lifecycle.

The Challenges of Traditional Consumer Financing Lenders

Small businesses profit heavily from a well-structured consumer financing plan.

However, the key is to be meticulous with the third party providers with whom you align.

In most cases, small businesses turn to banks, credit unions, and other traditional creditors to handle their consumer financing solutions.

These are not the ideal partners for small businesses.

The challenge with traditional consumer financing providers is that they are focused on a limited number of lending products and services.

This can make it difficult for small businesses to receive the type of consumer finance solution that best suits their needs from these organizations, since many banks only offer loans in certain industries, such as construction or transportation.

What's more, the approval process tends to be long and drawn out, at times taking several weeks to get a response. By the time your customer is approved, chances are they would have already leveraged the services of your competitor.

The most notable challenge of partnerships between small businesses and third-party lenders for consumer financing lies in the terms and conditions offered. In most cases, these lenders offer ready-made, non-negotiable finance plans to customers.

Offering one-size-fits-all finance plans to customers is never ideal. Each customer has a unique financial situation. What may work for someone may not work for another person.

The solution?

Flexible finance plans.

Why Flexible Finance Plans Work For Small Businesses

A flexible finance plan has terms and agreements tailored to the situation of a customer.

Consider an example where one customer needs $5000 but they have no credit history or collateral, while another requires only $1000 with excellent collateral in the form of property.

The first customer would be given a financing plan with high interest rates as their risk profile is higher than the second one.

The second customer would enjoy lower interest rates as the risk of not repaying is much lower.

Flexible finance plans are tailored to a consumer's needs and they can be an effective tool for small businesses that want their customers to get access to financing.

It ensures that all parties benefit from the agreement, which increases the chances of a long-term, mutually beneficial relationship.

Businesses that offer flexible finance plans can increase customer loyalty and get more repeat business.

They are also able to reach out to customers who would not have been eligible for financing otherwise.

This type of consumer financing is an excellent tool for small businesses looking at growth opportunities in their sector or region.

It is also a very good option for businesses that are looking to expand into new markets or launch an entirely new product line soon.

The recent economic downturn has made some entrepreneurs reluctant to risk their capital on expanding, but consumer financing can help them break out of this stagnation and start growing again at a reasonable cost.

Not all third party lenders offer flexible finance plans to small businesses for consumer financing.

However, there are a select few that do.

Here's how you can partner with one that has a proven experience delivering these services.

Flexible Finance Plans with Time Investment Company

Time Investment Company is a consumer financing company that offers flexible finance plans to small businesses.

The terms and conditions of the funding we provide are very favorable and there is no limit on how much money can be borrowed on behalf of customers.

As a small business, you do not have to worry about receiving the full payment on your service order. As soon as your customer confirms, we release the full amount owed to you on your service. This is a win-win because you can secure the working capital you need immediately.

As a company that has dedicated the last 40 years to crafting winning finance solutions for businesses, we have successfully funded over $750M in loans across 250K companies.

Don't settle for less with a traditional third-party lender when Time Investment Company can assist you in doubling down on winning flexible finance plans.

Partner with Time Investment Company Today

Consumer financing is a viable and profitable initiative for small businesses.

That is why it is so important for businesses to partner with the right lender to assume the credit risk and properly manage this financial solution.

Time Investment Company can help you design flexible finance plans that attract more customers and help you scale your business.

Partner with us to take your making offering consumer financing as stress-free and straightforward as it ought to be.

Schedule a call with one of our finance experts to discover how you can partner with us today.

Sara Hafeman

With years of experience in the consumer financing industry, Sara Hafeman currently leads marketing and partner development at Time Investment.