You've visited the house, discussed the project in detail, worked up an estimate, and delivered the proposal. A few days later the phone rings: "By the way, do you offer financing?"

The answer is "No" if you're like most remodeling contractors.

Studies in 1998 by the Joint Center for Housing Studies at Harvard University show that only 23% of home improvement projects are financed through home equity loans or first or second mortgages. An additional 10% are financed by unsecured loans, including credit cards. According to Kermit Baker, director of the Joint Center, the fact that such a high share of remodeling work is paid for in cash "clearly limits the amount of business out there and limits the amount homeowners can spend on any project."

Single source contractor

Salespeople for Poulin Design/Build in Albuquerque, N.M., introduce the subject of financing in the first meeting with prospects. "We know every consumer seeking remodeling services goes through the same process," owner Tom Poulin says. "They're all looking at what it's going to cost, how they're going to pay for it, what sources of funding they might use, and what loan products suit their needs." Offering financing, Poulin says, makes his company a "single source contractor." A full 30% of the company's volume is financed.Offering clients financing -- either in-house or through referral to a local lender -- provides several advantages. First, it transforms that $45,000 addition into monthly payments of $450 spread over 15 years. "It enables clients to afford something they thought they couldn't," says Jeff Belkin, sales manager for Alure Home Improvements. The Long Island remodeling company had sales last year of $16 million; 27% of that was financed. Financing also nudges fence-sitters into making a decision by making the process of securing funding painless. If clients have to spend two or three weeks applying for loans, they may change their minds, either about you or the project. Help them secure financing and you not only get the job, you control how and when you'll be paid.

For San Antonio remodeler Mike High of Casa Linda Remodeling, financing is "part of the sales equation." On average, 60% of High's clients end up funding their projects through Birmingham, Ala.#173;based Compass Bank. High makes it easy by handing them an application on the first sales call. By the time High reaches the third meeting with "all the plans worked out and a contract ready to sign," he simply faxes the application to the bank. Most Casa Linda clients are approved within 24 hours.

Types of loans

Today's market offers a dizzying and complex array of loans and credit lines to consumers looking to have renovation work done on their homes. Three broad types of financing used include the following:

Home Equity Loans. Equity -- the appraised value of the home minus liens --serves as collateral for a loan or a line of credit. The home equity loan typically carries a floating interest rate, generally has the lowest closing costs, and is usually the least expensive approach for your client.

Construction/Renovation Loans. Where equity is insufficient, a construction/ renovation loan becomes an attractive way for homeowners to finance the work. Construction loans are either first or second mortgages issued on a loan-to-value basis, which takes into account the appraised value of the house once renovations have been completed. Payback begins when the project is done and after a post-job appraisal confirms the bank's collateral value. The process is "paper intensive," according to Keith Polaski, COO of Braintree, Mass.#173;based Radius Financing Group, and involves "a lot of coordinating of multiple parties." But it gives remodelers a great opportunity to land jobs that might otherwise have never been built.

Home Improvement Loans. This consumer loan may be either secured or unsecured and is generally offered at a higher rate than a home equity loan. This type of loan is most often issued for lower-budget projects, such as exterior improvements. Many are what bankers call "dealer paper," an arrangement in which the remodeler advances funds for the cost of the project and is responsible for the loan until completion. After inspection, the ultimate financier takes over.

What kind of loans are best suited for your clients? Andrew Moore, of North American Mortgage Co., suggests contractors "become broadly familiar with what's available," both from local banks and finance companies with national reach. Then cultivate two or three contacts among providers of each different type of financing.

Another option is to hook up with a single lender offering a broad array of products. Don Curtiss, president/CEO of America's Money Lending Source in San Diego, says his company recently set up a program in which participating contractors could offer customers a secured home improvement loan at 11% to 13% interest. Unsecured loans from $3,000 to $15,000 are offered at 13.5%.

Alure Home Improvement offers customers an array of financing options, including home improvement loans through Key Bank. "We put them together with a finance company, a bank, or a mortgage broker," Belkin says, depending on the size of the project and the client's personal finances.

Poulin points out that contractors should be prepared to discuss whatever financing might be suitable to the client's needs, "even if they don't use your financing or don't expect you to provide financing." It's an additional service and helps determine the feasibility of the project.

Lining up a lender

Many banks, mortgage companies, and finance companies seek out remodeling contractors either as dealers of their products or referral agents. Lenders look for stable contractors who will provide them with volume. How much volume varies, depending on the lender.

"Everybody would love to have a contractor who provides a million a year in business," says Bob Basinski of Old Republic Insured Financial Acceptance Corp. "But that's not always possible."

If you're interested in developing a relationship with a financial institution, you'll need to supply references from clients as well as statements from suppliers, subcontractors, and other lenders indicating bills are paid in a timely fashion.

"We also check with the Better Business Bureau and the city permit office, which is a good source of information," says Dan Bierstedt of Compass Bank in San Antonio. "They'll tell us whether there have been any complaints registered against the contractor."

Don Curtiss says contractors come into his company's program either on their own or after being contacted by field sales reps. His company, he says, is interested in "somebody who could give us $50,000 a month in paper," he says. Contractors are handed a dealer application package. Applicants fill out two separate forms and must submit to auditing and an AMLS credit check.

Speed, ease, and convenience

So what should a remodeler look for in a lender? Seek out a company that provides loan products suitable to your client base and one that will render a swift approval decision so you're not left holding the bag. Even more important, you need a lender that will treat your clients with all the care and consideration you afford them.

Contractors looking for a lender, says Robert Basinski, of Old Republic Insured Financial Acceptance Corp., Bloomfield, N. J., should consider not only the quality of the products offered but just how urgently that lender will treat a loan application. "If he goes with a lender who takes a day or two or three to get back to him, that's the wrong lender. All contractors know their applications may or may not be approved. If they're not, the contractor needs to know that right away, so he can take some other approach."

Tom Poulin has offered financing for 15 of the 19 years his company has been in existence. His financier is Conseco, which writes loans for roughly 1,500 remodelers, offering both revolving and closed-end products. "We thrive more with the people who have finance managers, who fully integrate financing into their sales,"says Jeff Sarratt, senior vice president of Conseco's home improvement division. "We market speed and ease and convenience to the very busy borrowers."

When a Poulin client signs a contract with a credit application, the company's finance manager submits the application to Conseco's Web site. Poulin can then use the Internet to monitor the loan's progress.

More essential in the future?

The run-up in real estate values in many parts of the country has changed the financing of remodeling projects. Many consumers now find themselves with substantial equity, merely because their property values have gone up. At the same time, they're tightening budgets as the economy slows.

"Right now we've gone through a boom, and not many contractors are worried about getting that marginal job," says Andrew Moore of North American Mortgage Co. "They're more worried about keeping Mr. Homeowner happy. But as we move through the business cycle, you may be thinking, How do I get the next job?" Financing it for clients is one good answer.