5 Questions to ask before choosing a consumer financing partner
Being able to offer financing can be beneficial to contracting businesses of any size. It can help close more deals, increase the scope of work, and is a great service differentiator. But just like paint contractors and projects, no two lenders (and their offerings) are exactly alike.
“Choosing a financing partner requires due diligence and effort,” says Joe Francesconi, president of United Consumer Financial Services, a provider of consumer financing for more than 35 years. “Whoever you work with will, in essence, be an extension of your company. Given that, you want to consider more than just terms and fees to ensure that the experience is positive for both you and your customers.”
Here are five questions to ask when choosing a partner that’s right for you:
1. What is the company’s pricing structure?
It’s important to understand costs related to providing this installment service to customers. Companies can charge the contractor, customers, or both. Fees can be any combination of a percentage of the amount financed, setup fees, service fees, minimum frequency fees, origination fees, the interest rate/APR charged to the consumer, and an even higher APR based on the borrower’s credit risk. All total, these fees can be quite reasonable to help contractors make the sale—or too high, erasing the benefits of offering financing. Make sure you understand all related costs before offering this benefit
2. To whom does the company issue payment?
Some providers fund an approved loan to the consumer—and others pay direct to the contractor. Obviously, the latter practice ensures the money reaches the contractor. Some companies issue payment after completion of a project or when the consumer agrees the job is complete. Make sure you know how and when funds will be paid out.
3. What is the lending company’s collection practice?
Because you brought this option to your customer, be sure the customer’s repayment experience is positive. The lender’s collection practices and approach should be in keeping with the spirit and integrity of your company. Look for companies that answer the phone quickly, are U.S. based, and have a website for online payments and account review. Look for companies with a late-payment grace period, because some companies charge late fees if a payment is even a single day late. Understand a company’s collection practices and be sure to explain them to customers.
4. How many funding options does the company provide?
Some providers serve as the source of the funds and have the liberty to create customized programs. The upside to this approach is that, as the source of the loan, the contractor obtains a program that works for their business, and the lending partner services the contract throughout its life. Also, working with entities that have the capital to hold their paper will make for a longer-term relationship.
Some brokers display side-by-side comparisons of various lender rates and fees, and connect consumers or contractors to financing companies. While having options is nice, frequently, consumers are given the payment, so contractors might not obtain their money in a timely manner, and there is no real relationship built between the contractor and financing company. Without the relationship, timely funding and approval can be negatively impacted.
5. How does the lending entity support contractors?
While it’s great to think that you’re handing the financing process off to your partner, there will inevitably be questions. Make sure you can reach a support team that has a good response time. Ask about technical support—especially if the program includes mobile app options. Also make sure they have a manual paper application, contract and support should your device fail or lose connectivity. In addition, ask for marketing brochures showing payment amount examples, making it easy to explain to customers about this option and to link from your website or project estimate to the lender’s website.
The business benefits of offering simple and reliable financing options are clear. Just be sure that the program costs, and other realities of working with a given company, are understood before selecting your partner.
To read more on how offering financing can help contractors, read the Trend in Focus article in the May/June issue of inPAINT: inpaintmag.com