Jeff Moeslein, president of Legacy Remodeling, in Pittsburgh, Pa., says he knows the company he and his father, Ken, have built would not be the same if they hadn't started offering financing more than a dozen years ago.
"It might be an overstatement to say we wouldn't be here, but it's accurate to say we'd be a different company," Moeslein says. Offering clients financing for all sizes and scopes of projects has, in effect, helped Legacy "age in place." Adapting its sales model to acknowledge the changes in the economy and homeowners' financial needs helped Legacy weather the business climate of the last few years and position it for growth going forward.
Moeslein was a featured speaker on the topic of financing at the 2012 Remodeling Leadership Conference.
Remodeling: How long have you offered financing and what types of financing options are available to your clients?
Moeslein: Selling prices for our projects can range from $500 for a single window, up to $180,000 for a room addition, so financing for them varies wildly. Smaller projects only need unsecured financing, and for that we primarily work through Certified Contractors Network's Enerbank payment program. They allow us to offer same-as-cash financing, which banks like GE and Wells Fargo are no longer allowed to offer since the banking reforms. With Enerbank, we can get an approval for the client over the phone before we even leave their house. It's a really simple process.
For larger types of projects that require secured loans, we just find that our local community banks have been our best bets. They do a nice job for our clients. For the most part, it's a matter of having the client sit down with the banker and look at refinancing options. One bank in our area has been offering a 2.99% interest rate on a refinance that works out to about 3.25% APR for clients with the best credit. A client that wants to buy a $100,000 project could refinance their mortgage from 5.5% to 3.25%, and go from a 30-year mortgage to a 15-year, could shave $200,000 off the total cost of their mortgage over time. With that kind of information, we can show the homeowner they'll save by refinancing, spend have of that savings on the project, and they'll still end up $100,000 ahead and have an extra 1,500 square feet on their home and all the equity that kind of an improvement brings with it.
Remodeling: How do you educate homeowners on the fact that you offer financing?
Moeslein: Our website has a page about our financing options, and even has a basic credit application if homeowners want to get an idea of what they'd be approved for.
Beyond that, we instruct all our sales staff to make sure they mention financing on all sales calls. When they get to the point in the presentation where it's time to ask for the order, they show the client the total price in a couple of different ways, such as: "This job will be $12,000, or $125 a month for five years." Some homeowners may have saved up for years to have enough cash on hand to move forward with their project, but not everyone is able to do that. Sometimes a homeowner isn't comfortabl admitting they need to make payment arrangements, so presenting the financing option during the sale can be really attractive to them because it's a much more manageable number.
Remodeling: What do banks or agencies like CCN look for in a small business that's interested in offering financing? What fees are involved?
Moeslein: There are definitely some basic requirements a business has to meet. You have to provide a copy of your state registration, which we're required to have here in Pennsylvania, proof of insurance, and things of that nature.
The other thing they want to make sure of is that you're not going to go out and use financing to drum up work from ultimately unqualified homeowners. With CCN At least 20% of what we send them should be able to be approved for credit, or we could be removed from the program.
Signing onto a contractor program requires a set-up fee plus a monthly membership fee that can vary depending on the level of service the program provides to you as a dealer. We're charged between 2.5% and 5% of the sale for same-as-cash. Our monthly fees are simply budgeted to G&A as a business expense and built into the overhead for our jobs.
Remodeling: Do you find homeowners are more likely to spend more when they know financing is available?
Moeslein: That's sometimes the case on larger proejcts, but not necessarily on smaller ones. On those unsecured loans, the financing application is submitted after we give the client the price, whereas on design-build jobs, the process takes longer and they're working directly with the banker. Banks can often offer a loan for up to 115% of the improved value of the home, so in those conversations the banker may let homeowner know that they can get approved for more than what our original budget was projected to be.
For the most part, we don't worry about trying to upsell based on financing because as a company we try to focus on repeat and referral business. If they buy their windows from us this year and have a good experience with us, a year from now hopefully they'll call us for the entry door and use the financing option again.
Click here to read more from the 2012 Remodeling Leadership Conference speakers.