Customer Financing To Grow Your Contractor Business

As interest rates, material costs, and demand for home renovations all remain high, customer financing is a more useful sales tool for contractors than ever. Offering your customers financing options can help unlock new business opportunities and help your customers complete their projects and dream renovations by allowing them to spread out their payments over time.

In this article, we’ll cover the basics of offering customer financing: everything from how it works, pros and cons, how to select the right financial partner for success, and top third-party financing options to consider.

How Customer Financing Works

Contractor customer financing, or consumer financing, is a tool that allows customers to access affordable payment plans for home improvement projects. This can be a win-win solution for both the customer and the contractor. Customers get to spread out their payments over time, making projects more manageable. In turn, contractors can grow both their customer pool and project scopes by introducing flexible financing options.

Essentially, there are two options when it comes to making financing available to your customers. You can either guide your customers to a third-party lender who would provide qualified customers with a loan for your project. Or you can provide in-house financing, where you extend loans to your customers, and they repay you directly. For the purposes of this article, we focus on third-party financing because in-house financing is much less common.

Advantages of Offering Contractor Customer Financing

There are four general benefits that customer financing can bring to your contracting business:

1. Boosting sales and cash flow
2. Enhancing customer loyalty and satisfaction
3. Expanding your client base
4. Creating a competitive edge

Boosting Sales and Cash Flow

One of the most tangible benefits of contractor customer financing is its potential to boost your sales. By addressing customer financial constraints and enabling them to make purchasing decisions, you can increase your revenue, job size, and average order value.

Studies have shown that offering financing increases sales close rates by 18%, which only makes sense: financing gives customers more options to say "yes" to a project – and they do.

In terms of cash flow, customer financing can help contractors get paid regularly and on time, by ensuring customers will have access to the funds needed for a project.

Enhancing Customer Loyalty and Satisfaction

Contractor customer financing also significantly contributes to increased customer loyalty and satisfaction. By offering flexible payment options and ensuring the customer pays in a way that suits them, you can make your services more accessible, foster stronger relationships with your existing customers, and encourage repeat business.

Moreover, satisfied customers who have had successful home projects thanks to customer financing are likely to spread their positive experiences through word-of-mouth recommendations, leading to positive referrals. This can further expand your customer base and enhance your business reputation.

Expanding Job Sizes & Client Base

Easy access to flexible financing could be the difference between a smaller job and a larger job. Customers are likelier to feel comfortable expanding the scope and quality of their project if they are provided the right guidance from their contractor -- and if they are provided the financial options to make it a reality.

In fact, an industry study revealed that offering financing can increase job sizes by 30%.

The benefits of offering financing options also extend beyond your existing customers, helping to attract new ones as well. By providing customer financing options, you will be expanding your pool of potential customers to include a wider range of those who may require the flexibility of spreading payments over time.

Creating a Competitive Advantage

Offering financing options can provide a competitive edge in the market, helping your business to stand out. Not all contractors offer easy access to financing, and the contractors that do immediately add value for their potential customers.

Providing third-party financing is a low-effort, high-impact way for contractors to differentiate themselves from others while offering real benefits to their customers that often translate into more sales and bigger projects. That's a win-win all around.

How to Provide Third-Party Financing to Your Customers

If you are interested in offering customer financing, there are a number of third-party financing providers and platforms that you can partner with. Some of the larger providers include Hearth, Acorn Finance, HFS Financial, Optimus, and PowerPay (more on those later in the articledo).

Most partners do not require contractors to sign complicated contracts or commit to exclusivity deals in order to offer financing to customers. Instead, once you decide which lender you want to move forward with, usually you can immediately:

• Add the lender logo to your website and sales materials, advertising the fact that you can help customers acquire financing. This can be a great way to start or deepen a sales conversation, particularly with customers who are on the fence about moving forward due to cost
• Send financing links by text or email to customers before a project gets underway. The process is designed to be seamless and easy for both the contractor and the customer
• Additionally, some lenders and platforms also provide customizable invoicing, contracts, and quote templates that show project costs broken out as monthly payments as a way to reduce sticker shock

Once a customer receives a financing link, the process follows the same format as a typical personal loan. The lender assumes all the risk and effort in reviewing applications, underwriting, credit decisions, funding the loan, and managing outstanding payments:

• Customers are pre-qualified for a specific loan amount and interest rate, with no impact on their credit score
• If they choose to move forward, the lender conducts a hard credit pull as part of the final application approval
• Funds are delivered to customers usually within one business day

Measuring the Success of Your Financing Program

Continuous monitoring and evaluation of the financing program’s success is crucial once it’s in place. This involves tracking key performance indicators (KPIs) such as:

• Win rate. How many more jobs have you gotten as a result of offering financing?
• Business impact. How much more profitable has your business gotten as a result of offering financing?
• Job size impact. How has financing helped increase the size/scope of your jobs?
• Customer satisfaction. How pleased are your customers with the financing options you provided?
• Customer retention. How has offering financing impacted your repeat customer base?
• Customer expansion. How has offering financing impacted your new customer pool?

By regularly examining these indicators, you can confirm whether you – and your customers – are getting as much value as possible out of your lending relationship. Remember that lenders want you to succeed because they make money when your customers work with them.

As you go, you should not hesitate to reach out to your lending partners and ask how you might be able to optimize your approach to customer financing.

How to Choose the Right Partner for Your Business

The effectiveness of your customer financing program starts by choosing the right lending partner for your contracting business. Factors to consider when choosing a financing partner include:

• Fees and interest rates they will apply to customers
• Lender requirements for contractors they will do business with (e.g., project volume or years in business)
• Loan sizes and types of products offered (e.g., personal loans, credit cards)
• Underwriting criteria/approval odds for contractors' customers
• Speed of loan funding
• Quality of customer service, including detailed customer financing FAQ
• Quality of overall experience for contractors
• Quality of overall experience for customers

Carefully evaluating these factors will help you make an informed decision and choose the financing partner that best meets your needs.

Remember that, ultimately, the lender will become an extension of your business' brand – for better or for worse. If the lender is highly reputable and offers great overall service and experience, it will reflect well on you. Of course, the opposite may hold true, so choosing carefully is of high importance.

Overcoming Common Contractor Customer Financing Obstacles

While offering financing can provide clear benefits and advantages to both your business and the customers you serve, it doesn't come entirely without potential obstacles and risks. Keep in mind:

Time and complexityThe customer financing experience may be one of the first things your customers experience when they start working with you.

Third-party lenders design the process to be quick and easy. However, adding another product to your sales toolkit is still going to require some time on the front end to set up properly and may add time and complexity to the conversations you have with your customers.

While the upside of more customers and larger jobs is almost certainly worth the effort in the long run, it is still important to consider the additional effort it takes.

Impacts to your company's brand

The customer financing experience may be one of the first things your customers experience when they start working with you. That's why choosing the right financing partner is key: a good experience will reflect well on you, but a bad experience may make your company guilty by association.

Make sure that you identify a lender who provides reasonably-sized loans at fair prices and that their digital experience is excellent. This will help customers achieve good results and set up your project for success.

Customer non-payments

Financing will help your customers pay you by getting them the cash needed for a project; however, just because they have the money does not guarantee payment. In most cases, customers will be acquiring a personal loan, which, although in this case intended for a home improvement project, still runs the risk of being misused or withheld.

Particularly if you are structuring payments over the course of a project, it is possible that a customer could have taken out a loan and still not pay you. Keep in mind that contractor financing is not a silver bullet when it comes to being fully paid in a timely manner. Prioritizing payment collection early when you integrate financing options into your business is key.

Top 5 Customer Financing Options

Choosing a reliable partner is crucial when looking to implement contractor customer financing. Some of the best third-party financing companies in the market today include:

1. Hearth

• Established industry leader and licensed loan broker who offers a wide range of technology products and sales tools and software designed specifically for home improvement contractors
• Hearth lenders offer loans from $1,000 to $250,000 with terms from 2 years to 12 years
• Rates as low as 4.99% and FICO score requirements as low as 550
• No minimum years in business requirements for contractors who wish to work with Hearth

2. Acorn Finance

• Financial matchmaking platform that compares loan rates for contractor customers across a range of leading lenders, including SoFi, Lightstream, and LendingUSA
• Acorn Finance lenders offer loans up to $100,000 with terms of up to 12 years
• Rates as low as 6.99%
• Customers can receive funds in as little as one business day after full application approval

3. HFS Financial

• Lender who specializes in direct-to-customer financing for home improvement projects
• HFS Financial and its partners offers loans up to $250,000
• Fixed rates as low as 6.99%
• Customers can receive funds in as little as 72 hours after applying

4. PowerPay

• Specializes in direct-to-customer financing for home improvement, solar, healthcare-related needs and recreation vehicles
• PowerPay offers loans up to $100,000 with terms ranging from three to 15 years
• Rates range from 8.99% to 17.99%
• Offers a variety of ongoing promotional programs to incentivize customers

5. Optimus

• Financing platform that specializes in matching customers with home improvement loans for all credit profiles – from prime to subprime
• Optimus doesn't publish minimum or maximum loan sizes offered but offers rates as low as 7.99%, as well as 0% APR financing for six months for qualified borrowers
• Claims 90%+ loan approval rates
• Most credit decisions are made instantly, and nearly all are made within 15 minutes of applying

The Bottom Line

Contractor customer financing can be a powerful strategy to boost your business’s sales, enhance customer loyalty, expand your client base, and create a competitive edge.

While lenders and third-party platforms aim to make the process as easy as possible for both you and your customers, it is important to fully understand what it will take to incorporate financing into your sales and customer relationship management program. When done properly and with the right partner, it is a win-win that is worth the effort.

Frequently Asked Questions