How to Offer Financing as a Home Services Contractor
Offering financing can be a strategic business approach to make your products or services more accessible to a broader range of customers. Learn more here.
Do you want to win over more home improvement customers while empowering them to purchase more?
Of course you do. You also want to minimize your financial risks and earn customer trust as you seek more jobs.
Offering homeowner financing might just do the trick.
This article explores the benefits and importance of homeowner financing to contractors. It compares homeowner financing to other payment methods. We’ll also address the common concerns associated with offering homeowner financing.
Is homeowner financing right for your contracting business?
Read on to find out.
What Is Homeowner Financing?
Homeowner or owner financing is a common term in the real estate industry. In the case of home improvement jobs, it’s an arrangement between the contractor and the homeowner. The contractor funds the remodeling project, acting as a lender. Afterward, the homeowner reimburses the contractor via installments, just like paying back a loan.
You can simply offer financing as an alternative payment option.
The financing details (amount, payment period, installments, interest, etc.) will all depend on the underlying agreement. The type of financing may also determine some of the terms.
There are generally two ways you can offer financing to your clients:
Contractor financing
This is the most straightforward method of financing home remodeling projects. Your contracting business offers the financing directly to clients. You fund the projects yourself without involving third-party lenders.
Contractor financing is way more flexible since you only deal with the client. That means you get to set all financing terms. Everything from how much you want to finance to whether or not to charge interest is up to you. Plus, you can decide the types of customers or projects that deserve financing.
While this type of financing is great, it’s quite the commitment. For one, offering contractor financing means essentially delaying payments. Unless you have the financial muscle to back it up, contractor financing could easily break your cash flow.
Also, you take on the financing risk alone. What do you do if a client fails to pay?
Third-party financing
Third-party financing involves an external lender. Your customers get funding from a lender through your contracting company. The lender pays for the job (wholly or partially) and later recovers their money from the client through loan repayments.
Financially speaking, this is much safer and more sustainable than contractor financing. You don’t run any financing risks, and you get paid on time. For you, it’s business as usual.
The only downside of third-party financing is that you’re not in full control of the financing. The lender sets the financing terms.
However, it’s your job to ensure the lender has your company’s and customer’s interests at heart. And that mainly comes down to the lender you’re working with.
Joist partners with Acorn Finance to offer convenient and affordable homeowner financing. With Joist’s Homeowner Financing, your clients can access over a dozen top lenders. These lenders are handpicked for their reputation and transparency.
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The Business Benefits of Offering Homeowner Financing as a Contractor
Are you still on the fence about offering homeowner financing?
Now is the time to make a decision. Homeowner financing can broaden your customer base, accelerate business growth, and cultivate customer trust.
Let’s explore the unique advantages of providing financing options at length.
Boost Contracting Sales
Only 63% of homeowners fund their home improvement projects with out-of-pocket savings. The rest rely on various financing options. Another survey found that over 25% of homeowners planned to finance home improvement projects by borrowing from contractors.
Clearly, financing is an attractive payment option for many homeowners. Subsequently, offering homeowner financing makes your services more accessible. Financing basically lightens the financial burden on customers, which can otherwise stand in the way of closing home remodeling deals.
Land Large Projects
Understandably, some homeowners shy away from large renovation projects. The cost alone can be prohibitively high.
Financing can be an effective means to break those costs down into more manageable chunks. It spreads the financial load over a longer period, making it easier for customers to handle. Rather than make one lump sum payment (which they maybe can’t afford), customers can make smaller monthly payments over a couple of years.
In this way, offering financing opens your company to large-scale, high-earning remodeling jobs. That broadens your service scope and brings in new types of clients.
Sharpen Your Competitive Edge
Financing options can make your company more attractive to homeowners. We’ve already seen that quite a number of homeowners turn to financing when remodeling their homes. In fact, many seek funding through the contractor.
Now, imagine being the only contractor in your area offering favorable financing options. You’d definitely be the go-to remodeler for homeowners looking for flexible payment solutions.
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Mitigate Financial Risks
If done right, homeowner financing reduces risks when it comes to getting paid. You can design a financing program that pays you on time and eliminates bad debts.
And when you work with a third-party provider like Acorn Finance, the lending is between the lender and your client. So it’s regular business for you, and you can get paid upfront.
Build Trust with Clients
Accepting a “buy now, pay later” policy wins you trust with customers. It shows that you value their home improvement needs above their money. In other words, getting the job done is your company’s top priority.
It’s that kind of trust that breeds long-term customer relationships. Also, it brands your company as transparent, caring, and honest.
How Does Homeowner Financing Stack Up Against Other Payment Methods?
Besides homeowner financing, how else do homeowners pay for remodels? According to a recent survey, most homeowners pay out-of-pocket by tapping into their savings. Many of those who can’t rely on savings alone turn to the following payment methods:
Credit cards
Paying with a credit card is easy and convenient for many homeowners. And as the contractor, you get paid instantly. However, most credit cards are limited and can only be used to pay for small remodeling projects.
Credit cards are not always ideal for covering even small projects. Depending on the type of credit card, the interest may be high, pushing the user into a vicious debt cycle.
Personal loans
Personal loans are great for financing home improvement jobs. The biggest problem is that not everyone is eligible for a bank loan. For instance, nearly half of Americans who applied for a loan in 2024 were rejected.
The loaning process can be lengthy too, causing payment delays. Also, personal loans are favorable to some borrowers but painfully expensive to others. It all depends on the borrower’s creditworthiness and the lending institution.
Home equity loans
Home equity loans or lines of credit are a big step up from personal loans. Such loans are secured by the borrower’s home.
Secured loans are much more affordable and flexible. But even so, it can take weeks or even months to get an equity loan approved. And many homeowners are understandably reluctant to risk their homes as loan collateral.
Cash-out mortgage refinance
This is where the homeowner takes out a larger second mortgage and uses the cash difference to pay for renovations.
Cash-out mortgage refinance is a relatively safer way to tap into home equity. However, it can be expensive since the new mortgage comes with higher rates. Plus, it takes a while to source money this way.
Homeowner Financing vs. Other Payment Methods
The truth is, all of these payment methods mentioned above have pros and cons. They work for very specific individuals in very specific situations. You can also encounter payment risks such as delays, deferrals, and staggered payments.
In contrast, homeowner financing is fast, reliable, and straightforward. You get paid quickly, and your customer can get access to competitive rates and repayment terms, fast applications, and funding within 1-2 business days.
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Addressing Concerns About Homeowner Financing
As a contractor who happily accepts cash, credit cards, checks, and digital payments, you may have some concerns about starting a financing program. We’ll try to address some of those worries by answering the most pressing questions on your mind.
Is setting up homeowner financing complicated?
No. But that depends on the route you want to take. Working with a third party, for example, is super easy. All you have to do is integrate the ready-built funding system into your sale process.
How will financing affect the relationship with my customers?
Don’t worry; your customers won’t see you as a greedy lender. If anything, they’ll love you for offering a financing payment option. To them, you’ll still be the trusted contractor, only now with the added benefit of making their home improvement dreams come true.
Does offering homeowner financing make me a lender?
Not at all; offering homeowner financing won’t make you a lender. You’ll be working alongside actual lenders to fund your customer’s projects.
Even providing contractor financing won’t make you a lender either. This type of financing is more of a “buy now, pay later” arrangement. So nothing about your business structure or model will change.
Who do I invoice?
Well, that depends on the financing arrangement. But usually, you’ll invoice the client, who’s then funded by a third-party lender. In some cases, the lender may pay you directly.
What if a customer fails to pay?
When working with a third-party financier, this is not really your problem. The contractor always gets paid upfront. After you’re paid, the lender follows up on the client’s repayments.
In the worst-case scenario where a customer defaults, the lender may involve you in helping them collect.
However, if you finance customers yourself, then it’s up to you to collect repayments. That’s the major risk of self-service contractor financing.
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Tips to Get Started with Offering Homeowner Financing
- Study how homeowners in your service area pay for home improvement services.
- Conduct a customer survey to find out if financing could be a viable payment option for your contracting business.
- Consider using an all-in-one solution like Joist, which integrates estimating, invoicing, payments, and homeowner financing.
- Integrate financing into your sales and checkout processes.
- Tell customers about the new payment option and make it part of your marketing message.
- Measure the performance of homeowner financing as a payment, marketing, branding, and sales-boosting solution.
Ready to offer your client more payment options and boost business?
Joist and Acorn Finance can help.