One of the great opportunities in the remodeling and home improvement market that's ignored by most companies, large and small, is financing. Not only does this deprive many homeowners of being able to fix up or remodel their homes, it also reduces the size of the remodeling market.

Photo: Mark Robert Halper

The experience of specialty contractors shows what's possible in home improvement and home equity financing. Contractors who build swimming pools couldn't survive without financing. Many deck companies offer financing to middle-income customers, which helps them sell a larger deck. For the past 25 years, many roofing, siding, and window contractors have aggressively used financing to sell their products and services. So have contractors who do kitchen refacing and sunrooms. Sears has financed a great deal of replacement business by letting customers charge the work to the store's credit card.

If those contractors can use home improvement financing to dramatically increase sales, project size, and closing ratio, why can't other types of remodelers? Or perhaps a better question is, why don't they?

Look at the automobile business. Statistics show 93% of new and used cars are either leased or financed. In addition, well over 50% use dealer financing rather than some other source, even though it's more expensive. Convenience and quick credit make the buying decision easy. I guarantee you: If auto companies and home builders got out of financing, the negative impact on their sales would be dramatic.

Possibilities for Growth

The latest study by the Harvard Joint Center for Housing Studies on the use of financing for remodeling and home improvements shows that the most popular ways to fund projects are savings and tax returns, home secured loans, and credit cards. These three sources account for between 80% and 90% of the funding. Other sources include gifts from family, home mortgage refinancing, and insurance. Home improvement financing accounts for less than 10% of the funding.

Experts I've talked with about opportunities for home improvement financing and growth in the industry agree that volume increases of 25% to 50% or higher would be likely if financing was used more widely.

What Needs to Be Done

Some steps must be taken to develop the delivery system for home improvement financing and home equity financing for the total remodeling market.

Manufacturers, particularly those of name brands, must take an active role in the selling process, including financing. They stand to benefit as much as any other segment of the industry.

Lumberyards, distributors, and home centers need to partner with contractors to help them offer financing.

Other players who will likely become involved in the contractor financing process are associations, buying groups, and maybe franchise operations. It would make a lot of sense for the NAHB's Remodelors Council, NARI, and the NKBA to bring their supplier members together with contractors to investigate the concept.

There's a lot of money to be made from financing. I remember reading that Ford Motor Co. made more money from their finance operation than they did from making and selling cars. Another study on home improvement financing showed that a remodeling contractor who offered home improvement/home equity financing experienced a 20% higher closing ratio at a 20% higher project price. If customers approved for basic project financing were informed they were eligible to borrow even more, they responded by expanding the scope of work.

Which brings us back to the question: Why wouldn't more remodelers offer financing?

--Walt Stoeppelwerth is a publisher of management and estimating information for professional remodelers. (800) 638-8292;;