The advertisement promises that you can “Buy now and make no payments until 2007!” Savvy customers flock to these programs, often called same-as-cash financing, as they look to maximize their financial resources. “The old paradigm in financing home improvements was low monthly payments and low interest,” says John Harris, senior vice president of EnerBank USA, a specialist in same-as-cash financing for the home improvement industry. “The new paradigm is same-as-cash for 90 days or six months.”
How It Works Same-as-cash financing allows the homeowner to apply for a bank loan for the full amount of the purchase, defer payments for the term of the loan (generally 90 days, six months, or 12 months), and pay no interest on the loan provided the entire principal is paid back within the approved loan time frame.
After the loan is approved, the homeowner receives a two-party check made out to both the homeowner and the contractor. The homeowner endorses the check when the job is finished, and the clock starts ticking on repayment when the check clears the bank. Banks don't provide this service for free, of course. The contractor pays a percentage of the loan amount in fees, which vary according to the term length of the loan. But, Charles Gindele, owner of Dial One Window Replacement Specialists in Santa Anna, Calif., says, “Fees have come down, so a six-month program isn't much more than what a credit card would cost you to process.”
Upper limits on the amount that banks will loan vary from institution to institution, but $20,000 to $25,000 is the typical range.
Use It to Close Same-as-cash financing is not going to bring customers who wouldn't otherwise be doing the job. But it will encourage the homeowner to book immediately. “Same-as-cash is a tool,” says Jason Durante, president of Durante Windows and Siding in Birmingham, Ala. “You use same-as-cash to make it easier for the consumer to purchase your product. We want a commitment before we leave the house.”
But the contractor should keep a sharp eye on cash flow. If you are booking a lot of same-as-cash jobs in one month and not taking any deposit money in advance, your cash balance might take a hit when you have to pay for your materials. But with sound management, a solid same-as-cash program can help your bottom line by enticing financially stable customers to quickly commit to long-desired home improvements.