As a home improvement professional, whether you're a builder, interior designer, contractor or home remodeler, you always want to go that extra mile to help your clients achieve their dream space. At the same time, you’ve probably also seen the chilling effect that sticker shock can have on a sales conversation. By offering your clients financing options for home improvements, you can provide them access to the necessary funding for their desired renovations and keep your sales pitch on track.
Offering customer financing and flexible repayment options can also result in big wins for your business, allowing you to close more deals, increase sales, upsell projects, ensure steady cash flow, and generate more revenue.
Here we look at the best practices when discussing finance options with home remodeling clients in sales conversations, plus the benefits home improvement financing can bring to both parties.
Difference Between Contractor Financing and Home Improvement Financing
Contractor financing for home improvement and construction projects deals specifically with finance options for construction businesses looking for capital to grow their company and retain a steady cash flow. Home improvement financing, on the other hand, is financing acquired by a homeowner to help cover the costs of a home improvement project.
Contractor Financing
A construction or remodeling project may take weeks or months before payment is collected, but up-front costs like materials, equipment, and labor are often accrued far in advance of receiving the funds needed to cover these costs. Contractor financing gives contractors options for receiving advance funds or deferred payments for expenses while a project is completed.
The most common types of contractor financing payment options include:
- Trade credit - This is the most common type of contractor financing, by which suppliers and distributors allow contractors to pay for products over a set period (typically 30 or 60 days), giving contractors a chance to collect the funds from the client.
- Line of credit - Offered by banks, a line of credit allows construction businesses to withdraw money as and when they need it, with interest paid on only the amount borrowed. Firms can withdraw and repay money as many times as they need, ensuring a steady stream of cash to keep projects on track.
- Business credit cards - Although the simplest and quickest way to purchase materials for a project, credit cards are notorious for their extremely high interest rates and annual fees. They should be paid off monthly to avoid interest charges, or could end up costing much more in the long run, which may still be shorter than the billing cycle on the project.
Home Improvement Financing
Home improvement financing (our topic today) is essentially a construction loan, taken out by the homeowner, often with the contractor serving as the middle-man between the lender and the homeowner. Compared to contractor financing, home improvement financing is much lower-risk for home improvement contractors, as that risk is assumed by the homeowner. Typically, a homeowner will apply for the loan from the financing company and repay them directly, while the lender pays the contractor up front for the job. This allows remodeling contractors to sell more jobs without worrying about cash flow, and upsell more expensive projects to homeowners who may not have been able to afford paying for them in one payment.
Offering flexible home improvement financing options gives contractors a competitive edge over other businesses that don't offer them, helping to win more potential customers that need the financial assistance. Many homeowners also appreciate the convenience of financing and project design and execution all being managed in one place, reducing the legwork to acquire financing on their part.
How to Talk to Your Clients about Financing for Home Improvements
Talking about money with potential customers is never the easiest part of a sales conversation. However, if you approach the subject of financing options tactfully and transparently without being too pushy, you'll find your clients will respect your openness and you'll win their trust. Take note of these tips for courteously incorporating financing options into your conversations and setting the stage for a productive discussion:
- Introduce the concept of using financing for a home improvement project earlier in the conversation, rather than later, so customers can address any concerns they have about affording what they want. By explaining the different payment options available to them and how staggered repayments are commonplace in the home improvement industry, you can help clients to understand the significant benefits of customer financing to help make their dream home real.
- Establish financing considerations as part of the normal sales process and any discussions about financing options will flow naturally, rather than feel forced or awkward. It will also set you apart from your competitors and establish your credibility in the home improvement industry. A construction estimating software solution like Houzz Pro will allow you to save estimates and proposals as custom templates, incorporating your company’s financing options into each estimate as a matter of course.
- When discussing a new home improvement project to potential clients, talk in small numbers first, leading with monthly payment plans, rather than hitting them with the full project cost at the start of the conversation and scaring them off. By seeing the project cost broken up into more manageable monthly payments, clients are likely to feel more comfortable with committing to a project and not intimidated by huge numbers. Offer them a few options of varying lengths and interest rates to appeal to a wider variety of budget needs.
How Home Improvement Pros Can Use Contractor Financing to Upsell Clients
As a savvy pro, you should see home improvement financing as an opportunity to upsell clients and expand project scope. Here are some tips and strategies for leveraging the option of financing in your sales process:
- Unlock upgrades and upsell. By highlighting the fact that financing can make renovation projects more affordable, you can encourage clients to consider upgrading to higher-quality finishes to achieve their ultimate dream home — a win/win for a client who gets a home they truly love, and a contractor who’s increasing their project revenue. Those marble worktops or larger sliding glass doors may only mean a small increase in your client’s monthly payment but a big difference in their overall satisfaction.
- Use remodeling financing to increase the scope of a project. For example, a customer may get approved for a larger loan than they applied for — additional credit beyond the scope of the initial project. In this case, you can suggest the customer uses this additional credit to enhance the project and achieve the very best outcome.
- Protect your clients from the unexpected. The increased max approval amount also represents increased flexibility for the project scope. This “extra” financed amount can be used as needed for additional work orders, change orders, unexpected issues, or products homeowners choose to add to their projects, reducing the stress a homeowner might feel if a project is at the top of their budget range. Often this increased financed amount doesn't have to be paid for if it's not used, but it protects the customer should future issues arise, giving some added peace of mind.
- Sell more work to existing customers. Existing customers offer a great source for additional work, so consider selling more products and services to them by reminding them they may have financing still available. Perhaps they have additional work they were hoping to have done — this would be the ideal time to finish it, when the loan rate remains competitive and they’re already approved for the funds.
Tips For Discussing Financing with Skeptical Customers
Not all customers are going to feel confident discussing loan options for their project. Here are some ways you can prepare yourself for conversations with clients who may feel uncomfortable with the idea of financing.
- Make sure to position financing for remodeling projects as a positive process, rather than a negative. Frame financing as an empowering option that opens up additional flexibility and possibility for your client, particularly if they have ambitious plans. It may be worth avoiding the word 'finance' altogether and instead refer to it as lower payment options or monthly payments, which feels less intimidating.
- Your customers are all different, and their payment requirements will differ as well. Offer promotional financing to meet the needs of all types of customers and align payment options with each buyer. For example, you could offer cash customers deferred interest plans, which postpone interest payments until after a certain date, allowing customers to keep their own money to spend on other areas. Alternatively, you could offer reduced interest rate plans to customers who take out monthly payment financing, which takes into account the decreasing outstanding balance as the loan is repaid, and calculates the interest on the remaining loan amount that is reduced over time.
- Focus on the benefits. Remind customers who may feel uncomfortable with the idea of financing that it can help them complete their ideal project without having to compromise based on price. Stress to them the benefits of financing construction projects, particularly that they won't have to drain their savings account to get the home of their dreams. Financing can also help them invest in higher-end, longer-lasting materials and finishes that will provide them with better value in the long run.
- Consider using analogies to frame the idea of financing, such as comparing a home improvement loan to buying a car with financing, or purchasing a house using a mortgage — situations with which your clients may be more familiar. Low monthly payments make things in life more affordable and more achievable, and we get to enjoy these things while gradually paying them back as we earn.
How to Leverage Consumer Financing as a Closing Tool
The more time each project takes you to sell, the fewer deals you’ll be able to close. Offering home improvement financing can be a closing tool, allowing you to win more projects and close deals faster.
- By offering customers financial approval right from the start, you will naturally increase the odds of your clients’ moving forward with a project, and even expanding their ideas to create a more ambitious design.
- Customers are more likely to work with contractors that feel established, and companies that offer financing options give the impression of a large, stable business with reputable partners.
- By giving customers a number of different options, you increase the likelihood of closing the project and securing funding in one visit, reducing your total time to sale.
- In a market where time and leads are both at a premium, every pitch counts. Offering finance options can help you convert more customers and improve your close rate, further growing your business.
Offering financing for home improvement projects provides a benefit to both your customer and your contracting business. It encourages potential customers to purchase your services, ensures you receive instant payments and secures cash flow, and allows you to concentrate on producing high-quality projects without constantly stressing about the budget. The key is to engage in conversation about financing in the early stages of the project planning and frame it as a positive outcome for everyone involved.
If you're interested in learning more, watch our Webinar with Greensky for expert insights on how to increase your clients’ buying power with financing solutions.
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