Charging It
Some remodelers are experimenting with credit cards not necessarily as a revenue stream but to give buyers just one more payment option, particularly for the likes of small projects, deposits, and change orders.
In Arnold, Md., Villa Builders has begun accepting credit cards and offering credit through GE Money. Two repeat clients quickly took the opportunity to charge small projects, of $5,000 and $8,000, co-owner Joanne Hall says. She anticipates that credit cards will also induce some customers to make higher-end selections, e.g., charging the $500 differential for a better faucet.
Credit does come at a cost: consumers pay interest, and businesses users pay fees, Hall notes. She gets special pricing through her QuickBooks adviser and also pays lower fees by using a “swiper” (which cost $95) instead of key-entering credit card information.
Brian Zeldes stopped taking credit cards at his company, BKZ Contractors, in Warminster, Pa., about a decade ago, when easily available loans rendered them unnecessary. “I was carrying around a credit card machine and paying fees, and nobody was ever charging.”
That changed in 2009 when Zeldes received several inquiries from prospects asking if he took credit cards. He now accepts Visa, MasterCard, and Discover, but notes that nobody has charged more than $1,000.
Traditions Custom Cabinetry has long accepted credit cards, but owner Nesslar notes that his clients are using them more conservatively, too. “Some would charge $10,000 or $20,000,” he says. “One client, when he got his final bill for $30,000, whipped out two cards.” Now, as noted earlier, his clients are shying away from even a “same as cash” offer.
Bank of You?
In Asheville, N.C., remodeler Sean Perry cashed out a $15,000 CD he had set aside “knowing that hard times were coming,” he says. He didn’t pump that money into operating funds at The Hands of Sean Perry, however; he loaned it to a prospect whose time frame for a $30,000 porch rebuild was entering a perpetual state of “in a couple of months” until he assembled the cash.
Having tapped out his home equity, the prospect had no other borrowing options. Having the confidence that the prospect would pay him back, Perry loaned him $15,000 at 2.21% interest, to break even with the CD’s terms. The ensuing job wasn’t huge, but what jobs are these days? More importantly, Perry says, “it was a little over a month of work for two employees.”
In Sacramento, Calif., Kent Eberle took a larger leap of financial faith to get the ball rolling on a $350,000 project whose first loan fell through. The clients had a fallback loan, but it was moving slowly, “and I wanted to keep my guys busy,” says the owner of Eberle Remodeling.
Confident that the clients were good for it (both had stable government incomes), Eberle gave the project the go-ahead. “We were two months into the project before the money came,” he says. But it did come, and that $60,000 risk did pay off in full for the $2 million company in Sacramento, Calif., when the project wrapped up.
A calculated risk? Yes. For every remodeler? No. “It’s a very high risk, and you have to be in a position in which you can fully accept that you might not get paid,” says Jim Strite of Strite Design + Remodel, in Boise, Idaho. Under the right circumstances, his company will loan a client up to $20,000. If the client defaults — which hasn’t happened yet — the case would be too big for small claims court on the one hand, and too small to justify attorney fees on the other.
One tip from Strite: If you’re going to loan money to clients, “consider escrowing it with a title company,” he says. For a nominal fee, the escrow company will collect and track payments. There’s no more guarantee that you’ll get the money back, but you’ll spend less time chasing down the interim payments.
—Leah Thayer, senior editor, REMODELING.
*Hanley Wood, the company that publishes REMODELING, has a business relationship with ServiceMagic.
This is a longer version of an article that appeared in the January 2010 issue of REMODELING.