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I’ve heard of contractors being “dealers” for banks and other lenders. I guess the deal is that the contractor provides the loan applications to the customer and delivers them to the bank.
I’d like to be able to do this. It’s got to be easier to sell a job if I bring the money to the table too. I know it’s got to be easier to sell monthly payments than one big lump sum.
I’m a small company. I work alone most of the time. I probably don’t do enough business to make it worth while for a bank to get involved with me but I figured I’d ask.
Is anybody doing this? What’s the arrangement?
Replies
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Ryan,
Are you a banker or a builder? I'd leave it to the clients to get their own financing. Why?-
1. You've got better things to do with your time.
2. Bankers are a pain in the derrier to work with
3. When the customer gets mad at the bank, the customer will be mad at you.
4. If they get turned down, they may feel funny, since you know about their credit troubles. Then, you lose the job, even though they may get financed elsewhere.
On the plus side, you'll know for sure if their money is secured (this would mean something to me, having been burned a few times, as previously posted) and I'm sure you think you're providing a valuable service to them, all well and good. Like anything else, it's a good idea until things start to go wrong.
I would expect things to go wrong.
MD
*Hi Ryan,You're about to dive into the deep end, so you better know your abilities to swim with undercurrents and sharks.Will the banks be loaning money based on your financial status or on the status of your clients?If both are iffy, will the bank become the client because you know they will not be your partner?What happens in a default and the arguments of workmanship come into question? Remember that the best defence for someone who can't pay is to attack the work.In order to cover all the bases also requires that you include a contingency fund in your quotes for the percentage of defaults that may occur in a given year.Will the contigency costs put your quotes out of line with your competitors and therefore cost you a lot of work?Get the drift?Gabe
*Ryan,you might have a good idea here.This is something that is done by a lot of companies specializing in replacement windows,or vinyl siding,or roofing.I don't currently offer this service but I have considered it from time to time.You know your particular area much better than we do. Something might work very well for you,that doesn't work elsewhere. Some things that are not necissary in some locations might be very much needed in your locale.You are selling fairly expensive goods and services.By providing financing,you may be able to make the actual total cost less of a deal breaker. Car dealers do this by focusing on the monthly payment,not the total price.A lot of consumers are acustomed to thinking of expenses in monthly terms.(so much for house payment,so much for electric,so much for cable tv,etc)A lot of people are simply not experienced in parting with large sums of money in big painfull chunks.Thats why the IRS steals money out of their paychecks a little each week instead of all at once at the end of the yearI think the arrangement you are looking for is the one I consider.You help arrange the financing.The financing is actually carried out by a 3rd party.Your work is paid for ,in full,upon completion. It then becomes the finance companies' reponsibility to absorb the cost of non-payers etc.It is very much possible for you to offer this serrvice without becoming a shylock yourself. Of course you will want to be very carefull choosing which company to associate with.I believe you have mentioned from time to time that you area is not as "economically robust" as some areas your Breaktime peers operate in.My area is doing pretty well,and I am able to generate sufficient sales without using the service you are contemplating.I think however,that it might be to my advantage to make similar arrangements NOW,and have a program in place ahead of the need.I know most of us like to think that our workmanship sells itself. In my case,I know people need roofs in good times and in bad times.Wether potential customers will be able to AFFORD new roofs in an economic slowdown might be another story.The ability to offer financing might be just the ticket to prevent my company from going under in a longlasting recession.I think you are pretty shrewd to consider this.Stephen
*I find financing a must for a remodeling company. The more convenient it is for the prospect to buy the more sales you will make. My company offers financing through 7 different lenders. It is part of our service. How does it work?We fill out the credit app. We are able to pull credit reports in our office through software on the computer. Then we analyze the credit and determine where we can get the app approved and at the best rate. It is faxed to the appropriate lender and then you wait a matter of hours for an approval and conditions. There is a title search required (done through a service for 55.00) and upon all the conditions being met, paperwork is provided to you for the client to sign. You then return the paperwork to the lender.Like most things it seems worse then it is.As for not getting paid. I have not found that to be a problem in 19 years. If you do run into that one bottom feeder you hold a mortgage on their property until you assign it to the bank. They become very co -opperative when this is explained to them nicely. The funding works in two ways:Either stage payments- checks are issued in the name of the contractor and home owner to be signed over as work progressesorYou turn in a completion certificate at the end of the job and get paid in full from the lender.I find that it is like a cousino (not a gamble)they separate you from your money by exchanging it for chips. When you have them just sign forms and third party checks they don't feel its their hard saved money being spent.Some of the hardest jobs I've collected have been from clients that saved money for years to get something done. It's like asking for their first born.What is easier to sign for a 183.00 monthly payment or cut a check from your own account for $12,000.00? Lets see, car dealers do it through leases and credit cards are owned by everyone. Buy now pay later, I get wealthy, life is good. Want a real mind blower? finance the deals yourself. I do. I love the mailman as he brings in those checks each month with a 14.5% rate and effective yield of 19-22%. Financing is important but it will also create its own department in your company. I have found it worth it. At least take credit cards its a start in the right direction.
*Been there... As long as the liability for the loan is EXCLUSIVELY with the customer/borrower and you aren't on the paper what you are doing is a very good move. Getting financing lined up as part of the package is done a lot in a variety of industries. But, if you are on the note you are a heartbeat away from having the whole house of cards collapse. Then even if you escape ultimate liability the costs involved in escaping will sink most anyone.
*Rick,Who pays the $55.00 title search fee? I'll bet you don't, so how do you get your clients to cough up $55 to see if their credit is up to snuff?Or is this all taken care of, post-contract, at the bank?MD
*Stephen, Very good observations. I have been approached(mail solicitation) by finance companies over the years, the problem is, these are very high interest loans. You are exactly right in suggesting that one be careful which companies to be associated with. I'm sure the best approach is to talk to several local lenders, and see what they have to offer. You need to make sure that at least one of them offers loans to the higher risk individuals, for this is probably the group that is most likely to want this service. Sear's is a shining example of the "monthly payment" approach to home improvements. They offer instant approval to their credit card holders, and the false(IMO) peace of mind that a national brand name gives. Their professional sales people hone in on the low monthly payments, rather than total job cost. They also play up the angle that the customer is taking a risk by dealing with an independant, with horror stories of absconded funds and incompleted jobs. But I am drifting off topic............ You get the picture, John
*Hey M.D.,How do you get the $55.00? ASK the client for it! We write the order and the credit at the same first visit. It is natural to ask for a deposit, part of which, will be used to offset finance costs incurred on their behalf.
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I've heard of contractors being "dealers" for banks and other lenders. I guess the deal is that the contractor provides the loan applications to the customer and delivers them to the bank.
I'd like to be able to do this. It's got to be easier to sell a job if I bring the money to the table too. I know it's got to be easier to sell monthly payments than one big lump sum.
I'm a small company. I work alone most of the time. I probably don't do enough business to make it worth while for a bank to get involved with me but I figured I'd ask.
Is anybody doing this? What's the arrangement?