By Michael Fredricks
According to a 2017 report from the Federal Reserve, 44 percent of Americans are unable to afford an emergency expense costing more than $400, meaning customers with an immediate home improvement need may not have the cash laying around to afford your contracting services. Consumer financing is an easy way to reach these customers and close more sales.
“When it comes to large projects, 96 percent of our customers have to finance,” said Matthew Flath, National General Manager at Beldon Windows. He also emphasized the importance of offering a full range of credit options to make sure you are not leaving any potential customers behind.
While typical prime financing options are great to help well-qualified customers make major purchases or fund an emergency home improvement need, approximately half of all Americans have FICO scores that are less-than-prime and do not qualify for prime financing (according to ValuePenguin’s most recent data).
To reach this massive pool of customers, savvy contractors implement a two-tiered financing program in which a second look financing provider is able to qualify credit-impaired consumers – in some cases approving up to 50 percent of customers who had previously been rejected for financing. In addition to the obvious sales bump, tiered financing can lead to more return customers, referrals and even employee retention.
How it Works
In the first tier of a financing program, contractors offer financing from prime credit providers such as Enerbank, Synchrony Financial and Wells Fargo. While these providers approve customers with great to excellent credit scores, many contractors offer a second tier for customers whose FICO scores and overall credit worthiness fall below the prime standard: second look financing.
If a customer is denied prime financing, they may still qualify for a second look option. For example, Fortiva Retail Credit, the leading second look program, is able to approve customers with FICO scores down to 500 FICO and beyond using an underwriting system that looks at other data alongside a credit score to determine a person’s ability to pay – as opposed to condemning a few credit hiccups.
“Second look financing allows us to provide an option to the 38 percent denial rate we get with prime financing,” said Scott Stiglich, Director of Business Development at BuyMax, LLC. “Of those customers, more than 40 percent are able to qualify for second look. If it weren’t for our second look option, those denied customers would not be able to get the service or product their families need for their homes.”
To make things easy, top second look providers are savvy to contractors’ tech needs. “We have it integrated into our process so that it’s seamless,” Stiglich noted, adding that customers can simply fill out the application on the smart tablet the sales person already has on hand. “Paperless is perfect,” he added, noting that the quick process allows the Direct Energy franchisees One Hour Heating and Air Conditioning, Benjamin Franklin Plumbing and Mister Sparky Electric to assist more customers in a day.”
Flath added that financial technology solutions make the financing process easier for sales reps by bringing the entire process into one user-friendly interface. Adding financing providers that integrate these solutions can make the sales process even quicker and easier.
What’s the Value?
Simply stated, implementing a second look option helps prevent lost sales caused by denied prime applications.
Once costly advertising and marketing campaigns help lead customers with home improvement needs to your business, flexible financing is important to help them through the sales process. “When a customer becomes a lead, we don’t know what they are dealing with in terms of financial viability, so these consumer options are very important for us to better serve them,” Stiglich said
In addition to the sales boost from the ability to serve a broader segment of customers, tiered financing will lead to return customers and referrals. Whether it’s a damaged roof, broken windows, worn out HVAC unit, flooded flooring or damaged kitchen or bathroom equipment, customers need your service, and they need it fast when there’s a problem with their home. Offering a second look option better positions your business to come through for a customer in crisis.
“It’s more of a necessity than a luxury,” Flath explained. “There are a number of reasons to upgrade, but when it comes down to it, a major question for these homeowners is ‘how am I going to pay for it?’”
Another financial incentive to implement tiered financing is the cost savings of reduced recruitment and training thanks to a boost in employee retention. Simply put, more sales means a happier sales force. As Flath said, “representatives are getting more sales, and they’re excited about the added commission.”
Stiglich sums up the value of a tiered financing structure, saying “it allows us to execute the highest level of service by providing an option for something the customer really needs.”
As important as financing is to fund home improvement projects, tiered financing is vital to fully reap the benefits of your credit program by ensuring that you are not restricting sales to any types of credit profiles. The benefits are return business, referrals, happy employees and, not to be understated, boosts in sales.
Michael Fredricks is the Senior Vice President of Business Development at Fortiva Retail Credit, the only second look financing program owned by a publicly traded company with decades of experience servicing credit-challenged consumers (issued by Mid America Bank and Trust Company). Fredricks can be reached at firstname.lastname@example.org or (770) 828-1001.