Home improvement financing has become an integral part of the building, remodeling, and home repair industry. By offering home improvement financing to their customers, contractors are able to increase revenue in multiple ways. Below are the top 5 ways you can use financing to grow your home improvement business.

1. Reaching a larger audience of potential customers

The first way that home improvement contractors can use financing to grow their businesses, is by reaching a larger audience of potential customers. Home improvement contractors’ main audience of customers is typically comprised of homeowners who have either cash, or enough home equity to qualify for a home equity loan (HEL) or home equity line of credit (HELOC). By offering financing to prospective customers, and by advertising it on their website and marketing materials, contractors are able to expand their audience to include homeowners without cash or home equity, but who have average or better credit they can leverage.

By offering financing, home improvement contractors are able to help these homeowners secure the funds necessary to complete their project. In most cases, when homeowner’s have at least average credit, they are able to leverage their credit and qualify for either a credit card, or an unsecured loan in order to pay for the project. Credit cards can be ideal for smaller projects, while unsecured loans are typically better for for larger project costs.

Example:

Strong winds damage a portion of a homeowners roof. Insurance will only pay out for the cost to repair the damage, and denies the claim to replace the entire roof, even though the roof is very old and has become leaky within recent years. The homeowner decides that it makes the most sense to replace the entire roof all at once to resolve for both the wind damage, and leak problem. This saves the homeowner the headache and time of having two separate roofing projects, and also ensures that the roofing materials match and look professional from the street.

Since this situation arose unexpectedly, the homeowner has not saved up ample cash resources, and only has a credit limit of $12,000 on his credit card that carries a 22% interest rate. The entire roof replacement was quoted at $25,000. The homeowner faces the decision of only completing the repair using the insurance funds, or seeking financing to complete the entire project in one fell swoop.

By offering financing to their customers, roofing contractors can take advantage of these opportunities by helping the homeowner obtain the funds they need to complete their desired project. Roofing contractors who do not offer financing, may lose the opportunity for the bigger project, or may lose the deal all together to another contractor who is able to assist in offering financing to homeowners in need.

2. Up-selling your customers to larger or higher value projects

The second way home improvement contractors can grow their businesses with financing is by up-selling their customers into higher value projects. When contractors offer easy access to additional funds with financing options, they open up the door to expanding the scope of any given project. This means adding additional elements, upgrading to nicer materials, or expanding the area of the improvement. Because home improvement can be somewhat of a disruption to daily home life and privacy, it often makes sense to complete all considered projects at once.

Example:

A homeowner decides it is time to remodel their old kitchen. They have saved up $12,000, and are ok to put an extra $2,000 on a credit card for a total budget of $14,000. After the home improvement contractor speaks with the client and understands their project needs, he or she can put together a proposal to address the homeowners needs within their budget.

The home improvement contractor who offers financing is able to take it one step further, and include additional proposals and options that include things like additional features (+$1000), better appliances(+$750), higher-end cabinetry brands (+$1250), nicer stone for countertops (+$1000), or an extra backsplash as theoretical examples (+$600). The total of all additional components in this example equal $4600, taking the original project from $14,000 to $18,600.

The contractor can then offer consumer financing as a simple solution to upgrading their project, at an affordable monthly rate. Instead of the thought of an extra $4600, the homeowner can have those additional elements at only $142.03 a month (payment based on $4,600 loan at 7% interest rate amortized over a 36 month period).

In fact, since the homeowner can likely get a better rate with an unsecured loan, why not finance the additional $2,000 they had intended on putting on their high interest credit card? That would now make the total loan amount $6600 ($4,600 of extras, plus $2,000). Even at a 9% interest rate, and amortized over 3 years, the homeowner would pay only $209.88 a month for all their extras, and would avoid high credit card interest. If a homeowner is going to remodel their kitchen once and have it for a lifetime, why not have the one they dream about?

3. Using financing as a marketing tool to have a competitive edge on competition

The third way contractors can use financing to grow their businesses is by using financing as a marketing tool to attract more customers. Financing allows contractors the ability to sell their services for an affordable monthly payment. There is a reason why car commercials, and sellers of high value goods sell their products using affordable monthly payments, instead of the entire purchase price. They do this to avoid sticker shock, and create the perception of affordability. This strategy can be applied to a home improvement business the same way, helping projects seem more affordable, and therefore helping contractors secure more jobs.

Example:

Contractor A and B are both bidding on a landscaping project that runs $25,000. The project is on a brand new home with no landscaping. The homeowner has little to no available equity in the home since they just purchased it. They also don’t have much cash since they just used it for the down payment to purchase the home.

Contractor A offers his services at the $25,000 mark, and can’t go any lower for the scope of the work that is requested.

Contractor B offers his services at the $25,000 mark as well, but also offers competitive financing as a second option to pay for the project. If the homeowner has good credit and is approved, they can finance the $25,000 project and pay only $518.96 a month (payment calculated using a 9% interest rate, amortized over 60 months).

The monthly payment is much more realistic and palatable. The homeowner decides to go with Contractor B who made it simple to move forward and pay for their project, given their situation.

4. Using financing to overcome objections, and close deals while they are hot

The fourth way contractors can use financing to grow their businesses, is by leveraging it to close deals when they are hot. When a home improvement contractor is working with an interested homeowner and selling them on their services, contractors can overcome the cost objection by offering financing. Contractors may not have a second chance to be in someone’s home again, or in front of their prospects to sell their services and reiterate value.

The more time a homeowner has to consider their home improvement project, the more precedence cost will factor into how they make their buying decision.

Consumer financing helps contractors avoid cost or sticker shock to cause them to lose the deal. This allows contractors to close deals while they are hot, by using home improvement financing as a key instrument to overcome any cost objections.

Example:

A contractor is in a homeowners home and has presented his proposal for the project. The homeowner loves everything and is clearly interested but instead of signing the contract, they instead state they, “want to think about it.” The contractor obliges and leaves, only to never hear from the homeowner again. The homeowner decided to wait til next year, find a cheaper option, decide they don’t need it, etc…

The contractor that offers financing and who is well versed in sales, understands that “wanting to think about it” is typically a hidden objection to cost. The contractor can use financing as a means to destroy sticker shock, make the project affordable, and get the signed contract at the peak of the homeowners interest (when they are right in front of the contractor and excited about the project).

5. Speeding up sales cycles

The fifth way contractors can use financing to grow their businesses, is by using it to speed up their sales cycles. Homeowners will often times decide to push off a project because after thinking it through, “it’s just not the right time”. We’ve all heard that excuse in various forms. Waiting for the “right time” is typically an excuse for not having the necessary funds in order to complete a project. By offering home improvement financing to their customers, contractors allow them to obtain funds quickly and easily, and avoid the sometimes endless pursuit of waiting to save up enough funds for the “right time”.

Example:

A homeowner asks for a quote to have their old, cracked driveway removed and repaved. The contractor asks a few questions and delivers a quote of $8,000. The homeowner is surprised, and thought that a simple driveway project would only cost around $2000. The homeowner decides it is not the “right time” and decides that they will hold off on the project.

Similar to our last example, offering financing can help overcome this cost objection whether it’s real or perceived. The contractor offers financing as a solution to pay for the project, and reiterates the value of fixing a damaged driveway before the problem gets worse. The homeowner agrees that it is better to address the problem sooner than later, and with an easy way to pay for the services, decides to move forward.

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