Why is it that car dealers offer financing and remodelers don’t? Dino Andreakos, co-owner of Bullfrog Builders, in College Point, N.Y., spoke with REMODELING about this and other issues related to financing. Andreakos was part of a panel discussion, “Helping Clients Pay,” at the Remodeling Leadership Conference where he was joined by Jeff Moeslein, president of Legacy Remodeling, and Bruce Pinsler, president of Galaxie Home Remodeling.
Remodeling: What would you suggest to remodelers who would like to try financing?
Dino Andreakos: From easiest to most difficult here are the types of options available: unsecured financing with a deferral program, like those in furniture or electronic stores – 12-month no-interest type of thing; the typical FHA home improvement loan — a secured $25,000 loan for a single-family home; or [something for which you can get more funding] but the most difficult for the remodeler to work with, the 203(k) loan.
RM: Why offer financing?
DA: It opens up your possible clientele list. If you don’t take financing, your client has to be liquid and successful and have money in the bank.
It’s surprising to me that more remodelers don’t offer it. When you see a car commercial in the U.S. there’s not one that doesn’t offer a monthly payment plan and financing attached to it. The range of cars that sell from a Kia to a Porsche is very similar to the remodeling industry. You can do anything from an $8,000 window remodel to an extension for $100,000, and you never see financing offered in marketing for remodeling. It’s puzzling to me that if you have an average ticket that’s comparable to an auto sales ticket that the industry doesn’t [offer financing]. What would the car industry be like if you asked everyone to write a $45,000 check for their SUV?
RM: Is it difficult for clients to get money now?
DA: It’s harder since the recession, but it’s available. Maybe it’s more fair now. [A few years back,] people were getting financing that they couldn’t pay back, but now the numbers have to work. Generally speaking, [a client’s] gross monthly debt payments can’t be more than 45% of their gross monthly income. You can get approved with that and with good credit. I.C.E. — Income, Credit, Equity — is the rule-of-thumb. If you [the remodeler] could get two of the three, you could get someone approved.
RM: How do clients know that you offer financing?
DA: On every piece of marketing material we put “100% financing available.” We have links and sublinks on our website to explain it. Everything we put out there with our phone number has information on financing.
RM: Who do you use to help finance loans and how did you decide who to go with?
DA: In terms of deciding who to go with there are not that many choices out there. For the unsecured loan there is Wells Fargo and GE. For a secured FHA loan there’s Home Loan Investment Bank.
With the 203(k) loans, you have to create a relationship with a mortgage bank that you can refer business to. Most big banks offer the 203(k); some are stronger in that department than others.
We have our own financing department, which makes it easier; it’s like having a marketing department. It makes things more controlled and efficient.
When I started the department, I hired someone with a legal and mortgage background. We think we might develop a processing type company where other remodelers could go through us to start their financing division. We can get them on line with the banks, which can be a difficult process. You have to be open for two years, have a certain amount of revenue, and submit a lot of paperwork. This new company, spun off Bullfrog’s finance division, would offer the services of helping a remodeler get set up and to process the paperwork for loans to clients, running credit, getting pre-approval ... It would make things a lot easier if we were able to offer this.
RM: What are some first steps?
DA: The unsecured loan first is a good learning tool. Try Wells Fargo or GE; they have regional reps who can come and speak with you. Then you need to create a “quick app” — the piece you use to obtain the information that you need to get somebody approved, like the questionnaire you’d fill out in a department store for credit.
RM: Are there costs involved with offering credit?
DA: Companies that offer financing usually [strive for] higher margins. There’s a “chop” or a “discount fee” — basically, a small cost. However it’s stated by the lender, it still boils down to a percentage paid to the creditor by the contractor for using their financing services. Some will be based on deferment programs, which have a higher cost to the contractors for offering these special promotions.
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