Mobile Apps Changing In-home Lending Experience

When most people think of apps, they’re picturing a mobile app, one used on smart phones such as Apple or Android. There, those apps provide information and interaction at a touch.

Most Jobs Financed

Home improvement companies have made use of technology in the office (CRM, for instance) or on the jobsite (estimating tools such as Eagle View and Hover). But until recently, the process of selling someone a home improvement job has remained largely outside the realm of technology.

Take financing. At some point in the course of the sale, usually toward the end, a salesperson would mention that the company provides credit, describe how that works and—if the customer is interested—pull out a paper application or, using a laptop, fill out the same application online. Not much different than it was 10 or 15 years ago.

Bringing up financing is often difficult for salespeople because it’s uncomfortable to talk about money. But there’s little choice: Most homeowners don’t have $15,000 or $25,000 in ready cash sitting in their checking accounts. They’ll need some way to pay for that re-roof or window replacement project, and the easiest way for many is an unsecured loan from a finance company.

As an example, companies such as Green Sky make available to consumers (through their contractor customers) personal loans of anywhere from $5,000 to $55,000, with terms at anywhere from two to five years. And more consumers prefer that convenience. An article earlier this year in American Banker noted that consumers, already carrying record levels of credit card debt—$800 billion worth, according to the Federal Reserve Bank of New York—increasingly favor point-of-sale loans in which they know “exactly how much they will owe and when, including interest.”

Financing Built-In The Sale

Stats show that the best salespeople are the ones also good at explaining a financing program to wavering homeowners. “The highest-performing salespeople in each office [I work with] have the highest percentage of financing,” says Brian Smith, a senior account executive with Dave Yoho Associates and a consultant with decades of experience as a sales trainer and corporate advisor to contracting companies.

Smith teaches home improvement salespeople to “bring financing up early” in the appointment, so that as the conversation moves toward closing, homeowners aren’t blindsided by sudden talk of loan amount, term, and interest rates. “The salesman enters the home,” says Dave Yoho, the industry’s preeminent consultant, “and it’s an environment where he’s expected to be an expert.” But, Yoho says, “is the salesperson competent to go through the rigors of what financing fits this homeowner best? The sheer number of options [means] you have to have a way for homeowners, through electronic information, to get involved with the transaction, which takes the heat off the salesperson.”

This is what a finance company’s mobile app is designed to do. Apps, says Mark Berch, president of Service Finance Company, in Boca Raton, Fla., who’s been lending to contractors since 2004, are “simple, easy, fast and more secure. You’re scanning and inputting. It’s a much easier way to transact and much more professional. The homeowner sees your company differently than they would if you walked in there with pencil and paper.”

Credit Conundrum

Most finance companies used by home improvement contractors are paperless. Salespeople can flip open a laptop, or a tablet, and access a password-protected portal, then walk the homeowner through the application process. Much rides on the homeowner’s FICO score, i.e., which determines how much, if any, money an institution will lend them.

Steering homeowners to the portal and stepping them through the credit application can be a tense moment. A problem for both salespeople and home improvement companies is credit rejects. Someone buys a job, but his or her application for the financing to pay for it is turned down by the primary lender—a home improvement company’s first choice finance partner—forcing the company to look elsewhere for financing. The sheer process can sometimes lose the sale.

But are they losing those sales because customers can’t find the right loan? Or any loan at all?

Limited Lenders

That search for other lending options may reach as far as subprime lenders: those offering loans at higher interest rates to people with low credit scores. In a small minority of cases, jobs can’t get financed at all, but more often, the applicant simply can’t find the right loan, and gets discouraged. Depending on the product they sell, home improvement companies can lose as much as 10% to 12% of their sales to credit turndowns.

Stephen Klein argues that while many finance companies serving home improvement contractors now make an app available, loan options remain limited. That’s because most home improvement companies limit themselves to one or at most two lenders. So in looking for the loan that best suits their project cost and financial situation, customers don’t have access to the full range of loan products out there.

In an effort to remedy that, Klein’s organization, the National Association of Professionally Accredited Contractors, will shortly release something called Optimized Lending Solutions via an app called the Optimizer. Klein says the Optimizer will work similarly to other financing apps, but rather than connecting homeowners with only the primary lender, the Optimizer will offer homeowners a range of options from multiple financing companies, based not on FICO scores but on preliminary information homeowners provide.

How It Works

The way financing apps work is that the salesperson swipes a homeowner’s driver’s license, which links to certain credit information. Add the loan amount and plug in a social security number, and most of the documents needed to move the transaction forward are downloaded. The customer chooses a loan program from what’s on offer.

Berch, for instance, says using the Service Finance app, a decision can be rendered in less than two minutes. His company, which offers 55 different loan products, approves 77% to 78% of applications.

The Optimizer app, Klein says, will enable homeowners to look at a range of loan products from multiple companies. It’s customizable, meaning that these lenders will be those a particular contractor has been vetted and approved for. Once that happens, the app links to the online portals of various financial companies in home improvement lending, similarly to the way Amazon and online retailers present a range of product options to the online shopper. The app would be available to companies, and their salespeople, under a licensing agreement.

Reduce Turndowns

Mark Curry, owner of Your Remodeling Guys, in York, Pa., who developed the Optimizer software product from a spreadsheet and has used it already at his own company for four years, says the aim of a multi-lender app that selects for appropriate financial data is efficiency.

If contractors can use the app to quickly point homeowners to the lending program that works best for them, the one with the highest likelihood of approval, the percentage of credit rejects will drop. As it does, the percent of leads that convert to revenue, will rise correspondingly. The Optimizer takes the guesswork out of what lender and terms to offer at point-of-sale.

He claims a 6% increase in close rate, based on his company’s sales metrics. “Think of it as a closing tool,” Curry says. “If you’re spending your money on leads, don’t you want as many credit approvals as you can get?”