Consumer Financing After Renovo: Small and Mid-Sized Remodelers Might Feel a Pinch

“Advance funding is a drug—once you use it to cover yesterday’s job with tomorrow’s revenue, it’s almost impossible to get off...”
—Mike Petrakis, CEO, PowerPay

Jim Campbell, a 30-year veteran in consumer financing at Wells Fargo, says the least-discussed casualty so far in the collapse of Renovo Home Partners is the network of lenders that funded the remodeling projects before any work was completed.

“Most of these home improvement companies are using consumer financing to help them sell jobs,” Campbell said. “The top ones are selling upwards of 90% of their jobs” through consumer lenders. Large players like Renovo routinely use “advance funding,” where finance companies disburse money to the contractor before the project is finished—and sometimes before it starts.

When Renovo shut its doors, those funded balances were still sitting on customers’ accounts. “Now the customers are being billed for that, and those consumer lenders are out this money essentially. When the consumer says, ‘I didn’t receive any services,’ they have to credit it back.” Wells Fargo’s practice, he said, is to automatically refund those affected, but he noted that not all lenders take that approach. Some will “try to stick it to the customers to reduce their losses.” Either way, someone on the lending side is absorbing a real loss on jobs that will never be installed.

“The customers didn’t deserve to pay for a company’s bad cash flow,”

Mike Petrakis, CEO of PowerPay, who has worked through several collapses in the home-improvement sector, said Renovo’s fallout mirrors patterns he’s seen before. “I’ve watched this happen in other industries,” he said. “There was a pool contractor with dozens of holes in the ground when they went under,” Petrakis said. He ended up securing all the subcontractors and completing every project so homeowners weren’t left with open pits. “The customers didn’t deserve to pay for a company’s bad cash flow,” he said. His point: when a large contractor fails mid-project, lenders, subs, and customers all get caught in the blast zone.

Advance Funding Under Pressure

The key question for the industry at large is whether lenders will continue to offer advance funding—and on what terms. Campbell says advance funding is like a “drug” for dealers: once a company relies on those early draws to cover overhead and past jobs, it becomes very hard to step off the treadmill. “It’s a line of credit for the dealer that they’re drawing on,” he said. “If the faucet gets shut off on the new jobs, then how do you pay for the old jobs?”

Petrakis echoed the “drug” characterization. “Advance funding is a drug—once you use it to cover yesterday’s job with tomorrow’s revenue, it’s almost impossible to get off,” he said. “Dealers get hooked on selling payment, not product.” Like Campbell, he warned that advance funding artificially props up volume until a shock—like a lender pulling back—forces a reckoning. Campbell said Wells Fargo already treats advance funding as a high-risk product and typically requires additional protections such as letters of credit or personal guarantees. But not every lender has been as conservative. Newer consumer-finance entrants have built market share by offering looser terms: higher advance percentages, broad eligibility, and minimal guardrails.

Petrakis said the boom in new lenders over the past decade also contributed to the fragility. “When money was cheap, everyone wanted into this space. Lenders used aggressive terms like 100% advance funding to buy market share,” he said. Some of those lenders, he noted, “never had the balance sheet to absorb a Renovo-sized hit.”

Campbell expects the Renovo fallout to force a rethink. “I have to believe that the folks who just took it in the shorts—or the ones who didn’t and could have—are going to change some policies and pull back,” he said. “If that gets pulled back and you’ve been borrowing from Peter to pay Paul, then all of a sudden you can’t fund the new deals you’re selling in advance. Where do you come up with the cash flow then?” So far, he hasn’t seen formal announcements from competitors restricting advance funding, but he believes policy changes are likely “fairly soon.”

Uneven Impact Across The Market

The tightening won’t affect all remodelers equally. Campbell says he’s already seeing a widening split between companies serving affluent markets with premium products and those working in middle- and lower-income segments with lower-priced offerings. “The companies that are dealing with affluent customers and selling higher-end products are rocking and rolling,” he said. “They haven’t lost a beat.”

“Some lenders are going to panic and slam the brakes”

By contrast, companies serving blue-collar markets are “really struggling”—not just with financing, but with basic demand and ticket size. “Where they used to go in and sell a whole house full of windows, they’re only selling the one window that needs to be replaced,” Campbell said. Lead flow, close rates, and upsell opportunities are under pressure in those markets, while customers are leaning harder on credit cards for everyday expenses, which can drag down FICO scores and approval rates.

For small and mid-sized remodelers that operate in those segments and depend heavily on advance funding, the Renovo collapse could be a double hit: tighter access to their de facto line of credit and a more fragile customer base on the demand side.

What Comes Next

Campbell doesn’t predict a sudden credit freeze—there are more consumer lenders in the space than there were 10–15 years ago, and many large players have strong banking relationships or balance sheets to backstop their programs. But he does see Renovo as a serious warning shot for advance-funding models, especially for lenders that don’t have a big bank’s capacity to absorb losses.

“These newer lenders don’t have the assets to lose on something like a Renovo,” he said. If they or their funding partners take large write-downs, he expects to see stricter advance-funding terms, more scrutiny of dealer creditworthiness, and, in some cases, an outright pullback. Petrakis believes the next few months will determine whether the industry sees a meaningful pullback. “Some lenders are going to panic and slam the brakes,” he said. “Others will quietly tighten the screws—more guarantees, smaller advance percentages, more verification before funding.” For smaller remodelers, he warned, “any reduction in advance funding is going to feel like someone cut their oxygen.”

For remodelers, the message is uncomfortable but straightforward: If your business model depends on getting paid before work is complete, assume that privilege may get more expensive—or disappear—so plan your cash flow accordingly.

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