According to Angi's 2021 State of Home Spending Report, the average home improvement spending was $10,341—a 25% increase from 2020. And sadly, most banks and traditional lenders find it risky to fund home improvement projects.
So, how do your customers receive funds to patronize your business?
One proven way to get cash for home improvement projects is by sourcing funds from third-party lending partners.
Getting home improvement loans from these companies does not require collateral and is funded more quickly than other financing options.
Your customers can use the loan to pay for their home repairs or upgrades.
Why Are Home Improvement Financing Programs Important?
There are numerous advantages to utilizing a financing program for home improvement contractors.
Often in-house financing issues detract your employees from your business and turn them into collectors. Or you need to end up creating a whole collections department. However, you can avoid all these billing and cash collection hassles by working with a lending partner.
Customers and businesses who use financing services benefit from them. Your customers will receive funds to pay for their home improvement projects rather than paying a large lump sum upfront.
You will also close more deals, make more sales, and consequently, grow your business. So, it is a win-win for both parties.
As you might expect, most people cannot afford to spend a large sum of money. By providing other means of funding for them, a more significant number of your customers can afford your services.
This is great for customers who want to renovate or repair their home and cannot afford it, but it is also great for your home improvement business.
How to Choose the Best Home Improvement Financing Program
Finding the best home improvement dealer financing program for your customers can be challenging. However, it is essential to figure out which one aligns best with your company's goals.
Several financing companies offer favorable terms, but not all provide the same benefits. So, you need to carefully evaluate the financing options the company offers to avoid choosing wrongly.
When partnering with a third-party lender offering financing to your customers, there are several factors you should consider.
Are the home improvement financing programs tailored to your niche?
A generalist finance company that doesn't understand what your home improvement business is about and how much you charge might not release sufficient funds for your clients' home improvement projects.
So, when you want to choose a lender, start by surfing the internet for lenders in your field.
Rather than going for generalist lenders, you should select a niche-specific lending partner that can offer financing for all the project types you specialize in.
Can your customers apply easily for the funds?
A complicated application process might put your customers off.
Customers want a user-friendly and straightforward application that is not time-consuming.
So you should get a finance company that allows your customers to apply online or offers quick on-site applications.
Do they release funds instantly?
As a home improvement contractor, you need money to buy materials and tools and pay workers to get the work done. So, you should partner with a company that can provide the funding in no time.
Otherwise, you will be delayed and unable to move on to newer customers.
Do they offer customer support services?
You should partner with a company that offers excellent customer support. Although your customers might not need it right away, it might make a difference if they have payment problems or run into financial difficulties later on.
To ensure it is a good fit, look over the lender's customer service team and read reviews from their previous customers.
Do they offer flexible payment options?
When selecting a third-party lender for your home improvement business, you should also analyze the loan's repayment terms and conditions.
Different lenders provide different repayment choices, and you should select one that allows your customers to choose flexible payment options such as affordable monthly payments, low monthly payments, etc.
Selecting a partner with strict repayment terms might be detrimental to your business in the long run.
Are there additional fees to be paid?
Some lending partners provide completely free home improvement loans, which allow borrowers to avoid paying additional fees such as prepayment penalties, competitive interest rates, loan origination fees, late payment fees, etc.
Ensure that you inquire about the fees before partnering with any third-party home improvement financing company to look out for your customers.
What are their financing terms and conditions?
Lenders have varied criteria for approving loans. Some third-party lenders are more flexible, while others are more strict when it comes to financing conditions. As a result, you should examine the terms and conditions of the financing company partner before committing your business to a partner.
Do not hesitate to ask the company questions about their home improvement financing program. Some third-party lenders need you to meet particular criteria to obtain a loan, such as specified credit ratings, debt-to-equity ratios or credit history.
So, you should be aware of everything you need to do before getting started.
Will they approve your customers?
Partnering with a company that will reject the applications of most of your customers will affect your business negatively.
Customers whose applications were dismissed are less likely to patronize your business again. Instead, they will find an alternative contractor who can help them receive funding without rejection.