Bruce Pinsler is president of Galaxie Home Remodeling, a full-service remodeling company with two locations in the Chicago area. Offering financing to clients has been a part of the company’s business model since it opened in 1984. Pinsler was part of a panel on financing titled “Helping Clients Pay,”  at the 2012 Remodeling Leadership Conference.

Remodeling: How do you offer financing?
Bruce Pinsler: Wells Fargo offers our clients credit with no interest for a year. They charge us a fee. The fee is based on the product you offer. It’s usually 3% to 4% of the loan amount. We ask clients to fill out a credit application, and our credit manager sends the information to Wells Fargo to approve. He can tell if they will accept it or not. Once Wells Fargo approves it, they send us the paperwork and send the customer a credit card, a credit card number, or an account number to use. People with good credit want to take advantage of the zero interest — they can manage that.
We also work with an FHA [Federal Housing Administration] loan through the South Central Bank. This is where homeowners without equity, but with good credit, can get money. Most of those loans are $10,000 to $25,000, for replacing roofs or windows for your clients. For $25,000, it’s usually a loan of around 8% with terms of up to 20 years. Once South Central approves the loan, and the client signs the documents, the bank e-mails us the loan documents. We usually receive a check when the job is finished — after the customer signs the completion document and the bank calls them to make sure they are happy. On large jobs, we do staged funding, where we receive a portion of money upon the execution of the loan documents and the other portion upon completion.

RM: How has financing changed since the recession?
BP: The guidelines have changed. It’s now pretty black and white — there are no more gray areas. The person with mediocre credit is not getting loans. If they are, then huge discounts are paid to the lender by us or by the customer to get them to buy the loan.
When interest rates were 12% or 15% or higher, we were making money for banks on the loans. Today, we are paying banks for these loans. Do we like it? No. But it’s either pay the banks or pay the credit card companies. For Wells Fargo, it differs based on the size of loan and the terms and the customer’s credit, but we generally pay 4% to 5% of the loan amount to get a customer a one-year no-interest loan. Credit cards are 2.5% to 3%. It’s a cost of doing business today — you have to figure it into your overhead.

RM: What happens to customers who can’t get loan?
BP: Customers who can’t get credit end up not doing the job. That’s the problem today with financing. Interest rates are so low, which is great for some people, but the guidelines limit who banks can lend to. This hurts my customer who has a 620 FICA score and pays his bills but has had rough times. Or the person who lost his job and now has a job, but whose credit is screwed up. In my opinion, that has to change before we can have a recovery.

RM: Do you promote financing in your marketing?
BP: It is an advertising hook to get people motivated to do things sooner than they wanted. We include it in every ad.

Click here to read more from the 2012 Remodeling Leadership Conference speakers.