Remodeler to Remodeler: Financing
Two remodelers discuss the benefits and costs of in-house financing vs. lending institution.
Poulin Design Remodeling in Albuquerque, N.M., finances about 30 percent of its business in house, says owner Tom Poulin, CGR. A finance manager watches over the process for the $3.4-million design/build remodeler.
PR: How do you present financing to your clients?
POULIN: We have a “Remodeling Made Easy” guide that we’ve developed, and there’s a financing section in it. We ask them what financing they’re considering, and we let them know up front that we offer financing on all the different types of projects we do. We want the customer to feel that talking and consulting about financing is a customary part of our service to them.
PR: What types of financial packages do you offer?
POULIN: We offer a no-payment, no-interest-for-six-months product. We use American General Financing for projects under $7,500, and we also accept credit cards. We offer other products through Conseco and through another local company.
PR: What’s the benefit to the customer?
POULIN: You can present jobs in the format of monthly payments, to which the consumer is conditioned. You can show them what your product runs in a way they’re accustomed to seeing it, and they can plan for the purchase. You can also prequalify the customer, and once we do that, it’s like a wall drops down. They can design and select product with the knowledge that the money is in place, and they’re not wondering about payments when presented with the contract.
PR: What’s the benefit to the remodeler?
POULIN: By facilitating financing and presenting it to the customer, it increases your closing ratios. You also maintain control of the sale when clients don’t have to go to the bank. A banker may advise consumers to get three bids for such a large investment, and then all of a sudden you’ve lost control of the sale.
PR: What are the drawbacks?
POULIN: Jobs must be completed and the customer must sign a completion certificate before you can get paid, and that can be a drain on the cash flow of the company. It’s not hard to set up the system in the first place, because companies’ representatives are actively marketing to remodelers. They do all the set-up and show up once a month to solve any problems that you’re having.
MGD Design/Build does $1.25 million a year in business just outside of Washington, D.C. Nine employees work on jobs that average from $75,000 to $100,000, and although the company has accepted credit cards in the past, company owner Michael Dent has stopped the practice. MGD doesn’t offer any other forms of in-house financing.
PR: What type of payments do your clients use?
DENT: The payment methods from our customers are either cash or “other.” Typically, they get financing from a bank. We don’t provide payment plans for them.
PR: Why did you decide not to offer financing?
DENT: I have no desire for the extra work. Those extra tasks aren’t necessary for me to get my money, and I don’t need it for marketing either. It can be a selling point for the companies that do provide financing. After all, they provide a service that others might not have—but our jobs are larger, and I assume it would take longer to get the money approved for our work.
PR: What was your experience when you did accept credit cards?
DENT: We accepted them in the past, but we stopped doing it because clients didn’t use them very often. We began taking them because it was a great way to collect the money on change orders, but we’ve never seen the need to continue it—our clients pay the change orders anyway.
PR: Do your competitors offer financing?
DENT: I would say that in my area, none of my competitors offer it or see the need for financing. But I would also associate that with this particular market. I work in an affluent area, and the people here have their own cash. The real estate equity is fairly high, and a high percentage of our customers have enough equity in their homes to pay for the work we do.
PR: Have you researched financing options?
DENT: Yes. I’ve never really been motivated by any benefits to our system by them, though.
PR: Are there any reasons that you’d consider going with in-house financing?
DENT: The No. 1 reason I would have it in my company would be to allow customers to pay in scheduled payments. When they can break payments down by month, there’s a comfort level in the knowledge that you can afford it. It’s a benefit to the client, as it protects their cash flow.