What if there was a way to grow the size of your projects and increase overall sales without adding any new sales people? It sounds too good to be true, but experts say that’s exactly what offering customers financing can do. And surprisingly, few contractors are taking advantage of this increasingly easy-to-offer sales vehicle.

“When the average ticket for a home improvement project is $10,000, if you don’t offer financing, you’re not in the game,” said Ger Ronan, owner of Yankee Home Improvement. “It will consummate the sale and make customers much more comfortable.” 

Banks also have recently gotten more comfortable with home improvement financing, and a growing number now offer their own programs including powerhouses such as Goldman Sachs. A report from Harvard University’s Joint Center for Housing Studies sheds some light on why: Nationwide, home improvement spending in 2015 looks as if it will easily eclipse the $325 billion set during the peak of the last housing boom. And home improvement is faring much better than the overall housing market, the JCHS report said.   

Meanwhile, recent consumer protection regulations have made home improvement loans much less “scary” than in the past, said Brandon Perry, president of AMS Financial Solutions. “A lot of things have come together to make it a better experience for everyone,” Perry said.

Still only a small percentage of contractors actually offer or arrange financing, according to a National Association of the Remodeling Industry survey showing principal ways customers pay contractors for jobs. Here are the results:

  • 96 percent, check
  • 31 percent, credit card
  • 26 percent, home equity loan
  • 22 percent, bank home improvement loan
  • 21 percent, cash
  • 11 percent, homeowner borrows money
  • 9 percent, financing we have arranged

Many contractors don’t offer financing because they have no problem simply accepting cash or checks. Others worry that they’ll insult their customers by offering financing, while at the same time fearing that it will make the sale too complicated. Conversely, they fear that a customer who doesn’t gets denied will be put off from the sale, said John Harris, executive vice president of sales and marketing for EnerBank USA.
But all of those perceptions are actually misperceptions, Harris said. When given a choice, many customers prefer to finance large home improvement projects, and eight or nine out of every 10 homeowners get approved, he added.

What’s more, many of his clients who offer financing report 30 percent increases in the size of jobs sold because contractors can upsell customers. “You could take a check for $10,000, but wouldn’t you be a lot happier if you got a payment for $15,000, and the customer got exactly what they wanted?” he said. “It’s increasing the sales without having to add additional sales people.”

Perry said today’s customer expects financing, and contractors who offer it provide another “value added” selling point that distinguishes them from the competition. “Many people who look for financing don’t necessarily need it,” Perry said. “But they see it as a part of the equation, and a way to leverage what they’re trying to do.”

Harris said the two most popular financing options are 12 or 18 months same as cash interest-free financing and more traditional financing over a period of months or years. Like accepting credit cards, contractors must often pay fees for some financing, typically around 6 percent. But Harris said those fees can simply be built into the cost of the job so customers are still paying for them.

Who's Offering Financing?

Here's a short list of financial institutions offering home improvement financing:

Goldman Sachs
Wells Fargo
AMS Financial Solutions
EnerBank USA
Synchrony Financial

But not all financing comes with fees. Ronan, who works with six different banks, has started working with credit unions, many of which offer no-fee financing and low interest financing rates. “We’re constantly looking for a better rate,” he said. “You have a highly educated consumer now with access to the Internet, and they’re going to shop rates. Money is money. If they can get a lower rate, they will and you don’t want to lose a deal by charging 18 percent.”

But offering customers financing doesn’t mean contractors are the ones putting packages together. Often, it’s as simple as mentioning that financing is available, providing a toll free number or going to a website. Most customers can find out how much credit they can get in minutes right while they’re sitting with their contract. That way, Harris said, contractors can close the sale and get it on the books.

In contrast, Ronan said many contractors tell customers to find their own financing and get back to them once they’ve secured it. “Now you’re losing control of the whole process,” he said. “They don’t necessarily have guaranteed money at the end of the job because they’re taking the word of the homeowner.”

In the end, that’s often tantamount to losing the sale. “If contractors aren’t offering financing, they’re missing the boat in their local market because someone always is,” Perry said. “The better the financing they offer, the more attractive it is to the customer.”