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HomeContractor ResourcesUnlocking The Secrets Of Home Improvement Financing
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April 2023

Unlocking the Secrets of Home Improvement Financing

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Last updated June 14th, 2024

Closing the deal on a lucrative home improvement project can be tricky. This guide will help you navigate how home improvement financing can work, and give you some tips and tricks for how you can use financing to close more deals.

Contractors who can offer financing options can close more deals — and do it faster and with less trouble. They also can upsell projects as homeowners see how easy and affordable financing can be.

In this guide, we will:

  • Outline the benefits of home improvement financing.
  • Describe some types of home improvement financing.
  • Review basic knowledge about financing and interest rates that contractors can use to put homeowners at ease.

It’s all about offering solutions for home improvement financing that suit your customers’ budgets and your mutual goals.

The benefits of offering home improvement financing

When you can give homeowners a clear path toward financing home improvement projects, good things happen. Here are some of the benefits.

  • Close more sales. It is easier to close sales when you can knock down homeowners’ pain points and obstacles. So, give them a quick, rewarding process for financing. This keeps potential customers “in-house,” instead of wandering off another contractor who offers financing.
  • Increase upsells, job size, and revenue. Talking about monthly payments instead of the overall cost is a well-established sales method that home improvement contractors can use. If your sales force can serve up financing options, they can use this technique to increase your average project size and revenue. A worried homeowner might reject spending an extra $2,500 for a desired project add-on. But if it’s presented as just another $20 to a monthly payment, approval is more likely.
  • Guaranteed payment for your work. With the right loan option for homeowners, you’ll get paid upfront. The homeowner can take months or years to pay off the loan.
  • Competitive advantage. It’s awful to watch a homeowner walk away just because of the finances — especially if they go to a competitor. It’s better to be the contractor with the easy financing solutions.
  • When homeowners talk to friends, write online reviews, and provide referrals, they’ll remember not just your great work, but the easy way you guided them to a lender.

 

How does contractor financing benefit homeowners?

Now, let’s look at the benefits of contractor financing from the homeowner’s point of view.

  • Simplifies financing. Customers can get a quote directly from you, including interest rate, terms, and monthly payment, right on the spot. They can compare rates from top lenders. No need for them to drive around town looking for a loan. No need to go through an extensive application for a home equity loan or line of credit, and then wait for approval.
  • Easier decision to make. It’s all about customer service. The easier you make a homeowner’s decision, the faster it will likely be made. Homeowners can see the project cost, monthly payment, possible add-on options, and everything they need to make their best decisions.
  • Faster job start. Homeowners can fill out a brief form and receive pre-qualified offers in less than a minute, with no impact to their credit score. And in some cases, customers can receive funds in as little as one business day. Once the contract is signed and financing’s approved, you can order a site survey or materials, draw up plans, and go grab a permit.

Types of contractor financing

There are many types of contractor financing. For example, contractors sometimes use loans to buy equipment or obtain working capital. But the focus here is on contractors providing financing for homeowners for remodeling and renovations.

What is contractor financing?

There’s an easy way for contractors to connect homeowners and lenders. We’re talking about contractors using a partner company to provide financing. It’s truly a win-win situation — for homeowners and contractors.

Each of the business models for contractor-offered financing has its own facets, costs, pros and cons. In this section, we’ll look at a few business models that a construction company or contractor can use to help customers obtain financing.

Acorn Finance

Acorn Finance is a great source for offering contractor financing, with many features.

  • There are no fees for contractors.
  • Loans are available for up to $100,000, terms to 12 years, and low interest rates.
  • Loan applications return pre-approval offers without hard credit pulls.
  • Acorn can have contractors set up and loaning in 24 hours.
  • In most cases, loan proceeds are available in full within 48 hours of approval.

Having the full loan amount in your account, right away, is a great perk for contractors. It lets you move forward quickly on projects, and order materials without delay.

GreenSky

GreenSky’s financing platform facilitates consumer loans with partner contractors. GreenSky offers loans up to $65,000 at various interest rates and repayment terms. GreenSky offers the option of deferred interest. If a loan is paid back during a promo period (which could vary from 3 to 24 months) there’s no interest charged.

  • Applications can be done through a mobile app.
  • The company does “hard credit pulls,” which affects credit scores.
  • Decisions can be made quickly if no complications crop up.
  • GreenSky charges construction businesses a transaction fee for customer payments.
  • Loan proceeds come monthly, not in a lump sum.

Hearth

Another financing platform for contractors, Hearth, offer loans of up to $250,000 and terms from 2 to 12 years.

  • Its process can be done through a mobile app to provide quotes and financing options.
  • It offers several digital tools and software to simplify the sales process.
  • The contractor isn’t paid up front when using Hearth. But the service offers to collect loan payments from customers on the contractor’s behalf.

Hearth offers a subscription plan for its services, with several tiers.

  • The lowest tier, the essentials plan, costs $1,499 annually. It does not include quotes, contracts, or banking.
  • The pro plan includes all of Hearth’s features for 5 users and runs $1,799 annually.
  • The elite plan covers 10 users and costs $4,999 a year.
  • All plans require a $99 set up fee to get started.

 

How do banks make money?

When homeowners have a basic knowledge of how banks and other lenders make money, it can help them to better understand the loans they are applying for. That understanding can make them more comfortable in deciding how much to borrow for home improvement projects.

Here’s a quick look at how lenders make money, not just on loans but across the board.

Interest paid and received

For starters, banks and credit unions offer deposit accounts and financial products on which they pay interest to customers. These include savings accounts, certificates of deposit, IRAs, and some checking accounts.

The more deposits and investments they attract, the more money banks have for lending to customers. People borrow money every day in the form of personal loans, auto loans, home mortgages, credit cards, business loans, and home-improvement and remodeling loans. When they lend money, banks charge higher interest rates than what they pay to depositors.

Service fees

Banks charge a fairly standard set of account fees. To cut your banking costs, it’s good to know what, when, and why your bank charges fees and penalties.

Deposit accounts

The fees on deposit accounts often include:

  • Monthly account fees, for things like maintenance and failing to keep the minimum balance.
  • Overdraft fees to avoid bouncing a check.
  • Withdrawal fees, when an account limits the number of withdrawals per cycle or the total amount of money.
  • Fund and wire transfer fees for transfering money to another person or bank.
  • ATM fees for withdrawing money.

Loan accounts

The fees here can include:

  • Application fees.
  • Credit-check fees.
  • Appraisal fees. These typically apply to mortgages and home-equity loans and lines of credit, to establish a home’s value.
  • Origination fees for paperwork and for dispersing funds.
  • Late payment fees.
  • Early payoff fees.

Trading and investment income

Banks engage in trading and investing on their own behalf and might also provide trading and investment services to customers.

Investment banks, in particular, focus on financial products for corporate and institutional customers, and may offer one or more of these services:

  • Underwriting. The bank buys shares or bonds from a business trying to raise funds. Later, they’ll try to sell the securities at a profit.
  • Financial advice. Banks advise startups, often about raising funds, and established companies, typically regarding sales of stock or debt notes.
  • Managing mergers and acquisitions. Banks research the value of a company targeted for purchase and offer risk-management strategies. Sometimes they negotiate prices.
  • Initial public offerings. In helping companies to go public, banks help to set the initial price of the stock, promote the offering, and manage sales.
  • Wealth management services. Some banks help wealthy clients manage assets and develop tax shelter and estate plans.
  • Asset management. Banks help clients set goals, choose investments, and set up trusts.
  • Trading services. Many investment banks have in-house trading departments to buy and sell stocks and bonds for customers.

Closing the deal

It’s easy to reap the benefits of giving homeowners a handy solution to a common financing challenge. You can close more deals, close them faster, and close them with a boost to homeowner satisfaction, confidence, and loyalty.

Acorn Finance connects homeowners and contractors with the industry’s best home improvement loans for construction, renovations, and remodeling projects. Contractors pay no dealer fees when helping homeowners find loans. Borrowers can access up to $100,000 with loan terms up to 12 years and APRs as low as 6.99%.

With prequalified offers that don’t impact customer credit scores and quick funds distribution, Acorn Finance does what others can’t. Check out the details and offers at https://www.acornfinance.com/.