Q: How many alternate lending sources should you have?
A: Almost all of the remodelers we spoke with had relationships with more than one lender. This enabled them to serve a wider range of customers. For instance, most had a first-tier lender — either a bank or a finance company — along with a second-tier option for credit-challenged customers. (See “Backup Bucks,” page S126.)
Q: Should your primary lender be local or national?
A: Some remodelers say that they get more business by offering multiple sources. That’s because certain customers are more comfortable with more choices. Some customers want local contacts; others are more interested in competitive rates.
However, if you’re a young company your only choice might be a local lender. “They will probably approve you more quickly than a national company,” says Mark Richardson of Case Remodeling in Bethesda, Md. “Then, as your company grows, doors will open to the national companies.” However, a national company might be a good choice if your customers are brand conscious.
Another option is something like the Home Projects Visa card from Wells Fargo Financial Retail Services. The card can only be used to pay contractors and home improvement retailers that are approved for the program. Participating contractors can offer the card to customers, who can then use it to pay for their home improvements. Revolving credit lines up to $25,000 are available to approved cardholders.
Q: Should I work with a mortgage broker?
A: Unlike agents that work with just one lender, a mortgage broker will originate and process loans for a number of lenders.
Remodelers’ experience with brokers varies. Allyn Harth of Harth Builders in the Philadelphia area provides financing through GE Money’s sales finance division and GB Home Equity. Before contracting with those lenders, he was approached by a number of brokers whose comparatively high interest rates — he saw numbers ranging from 12% to 25% — scared him off.
Others say that a broker who understands the home improvement market can be a great asset. “A broker knows how to match the customer with the right bank, based on that customer’s needs,” Weickgenant says.“The same way that we know how to match them up with the right tradespeople.”
Q: How much training do you need to sell financing?
A: Most lenders provide both an initial training session and ongoing support. The content and extent of the initial training vary by lender but could include everything from product types (what to offer when) to how to incorporate financing into a sales proposal to how to process the paperwork. Geoff Chang of KeyBank Home Improvement says the company’s account executives usually spend two hours training a new dealer’s salesforce.
This may not sound like much of an introduction, but lenders say that remodelers don’t need a lot of knowledge. The lender does most of the heavy lifting and will teach the remodeler’s salespeople everything they need to know, including how to make the offer and how to read a credit chart with APRs, ticket sizes, and monthly payments.