“Discount” financing is a term that scares many home improvement contractors. But without discount programs, a lot of potential buyers would not qualify for financing … which means fewer sales can be closed. And fewer sales means lower profits.
What is discount financing?
Many banks, credit unions and finance companies will only make loans to people with stellar credit. Anyone with a credit blemish is denied. As many contractors know, the past few years of economic difficulties, foreclosures and job losses have taken their toll on a lot of people, some of which is reflected in their credit reports. So, after putting the time, effort and MONEY into getting a commitment to buy, what do you do when your customer has some credit issues?
Here’s where discount financing programs come into play. Rather than simply declining customers who have some credit blemishes, the finance company may offer a “discounted” approval, whereby the home improvement contractor shares some of the risk by paying a fee to the finance company. The discount is reflective of the customer’s credit and application risk factors. The riskier the customer, the higher the discount. For example, if the finance company offered a contractor a 90% bid on a $5000 loan, the contractor would be paid $4500 for the sale. The $500 is a fee paid by the contractor that MAY NOT BE PASSED ON TO THE CUSTOMER. It goes to help cover the increased risk of approving a person with a weaker credit history. The discount is a fee between the finance company and the contractor; it does not affect the customer, who in this example, would receive a loan for the full $5000.
Why is discount financing good?
If the only customers who could get financing were those who never had a blemish on their credit, it would be much harder for contractors to close sales. By working with a finance company that can not only finance good credit customers, but also give discounted bids on weaker credit customers, you open up your market. That being said, each company needs to understand its margins and know when a discounted deal just doesn’t make sense. But once you have put time, effort and MONEY into getting a sale, making some profit is better than making nothing at all. Remember, these discounts are based on your customer’s credit … these customers are not likely to be approved by strict “approve or deny” lenders and they are less likely to have cash to pay you outright.
Accepting discounted bids when they make sense helps you close more sales overall. This brings other benefits such as helping to keep your salespeople happy, generating future service revenue and referral business from the additional customers and keeping your customers from buying from your competitors.
How much discount is too much?
This really varies. Each company has its own margins, business goals, cost structure, etc. At Foundation Finance Company, our goal is to offer as many approvals as we can. We approve qualifying “A” credit customers at 100% payouts … but we’ll also offer as many discounted bids as we can down to around a 30% discount (70% payout). We understand that not all contractors can accept discounts this large, but because we work with many different companies nationwide, each with different business goals, we’d rather give an approval than a denial and put the option in your hands. If the discount is larger than what makes sense for your company, you can always pursue an alternate payment method with your customer.
One call does it all!
Oh, and we also offer competitive “first look” programs for your well-qualified buyers. These prime approvals have no risk discounts … payouts are at 100% (unless promotional plans are used). Start closing more sales in less time with less hassle by giving Foundation Finance’s prime, near prime and subprime home improvement financing programs a try. Enrolling is free and easy. https://foundationfinance.com/dealerinfo/
Foundation Finance Company offers ONE-CALL financing for A, B, C and D credit. We’ve got programs for water treatment dealers, home improvement contractors, vacuum dealers, HVAC dealers, furniture and jewelry retailers and more. Call us today to find out how discount financing programs can help build your bottom line: 1-855-241-0024.