To Finance, or Not

by rheselbarth@solagroup.com

Remodelers exercise varying degrees of commitment to helping clients obtain financing. Some don’t help at all, some remodelers limit their assitance to connecting clients with lenders, and one remodeler puts up the money from its own corporate pocket. Success is not contingent upon how willing a remodeler is to assist its clients with financing issues, as Qualified Remodeler discovered when talking to remodelers at all levels of commitment.

QR conducted interviews with executives at Orfield Design & Construction in Minnetonka, Minn., Schroeder Design Build in Fairfax, Va., Custom Design & Construction in El Segundo, Calif., and Thompson Creek Window Co. in Lanham, Md., the highlights of which appear on the following pages.

 

Laura Orfield-Skrivseth

Co-owner

Orfield Design & Construction

Minnetonka, Minn.

orfielddesign.com

Like many remodeling firms, Orfield Design & Construction does not offer financing to its clients, but it will work with any independent mortgage broker or bank a client brings to the table, says Laura Orfield-Skrivseth, co-owner.

When clients inquire about financing options, Orfield-Skrivseth is quick to tell clients that others have worked on their own with banks or mortgage institutions. “I tell them I know a few lenders that other clients have been happy with, but I always preface it with not knowing who the lending institution will assign to the client, and that I’m not able to vouch for the lender’s behavior.

Thankfully, this has not been a problem because today, she says, clients mostly pay for with what they have in savings or done some sort of loan through a bank. Usually they have their ducks in a row before come to us,” Orfield-Skrivseth says.

Orfield Design & Construction chooses not to offer financing for a few reasons, including not wanting to force clients to work with one person or another, and possibly someone who won’t get along with the client. She adds, “Plus, no one can blame me if financing doesn’t go very well. I’ve heard stories where draws take almost two months to get, which is a pain in the neck. And stories about bad communication. If this ever happens with one of our clients, it won’t be a reflection on me since I would not be involved.”

In a time when access to money is an advantage, Orfield Design & Construction is doing fine without offering it to clients. “Our business is based on referrals, and clients usually are friends or family. We usually know up front if a client will be able to fund the project or not, and honestly, we’ve been in business since 1978 and have never provided financing, and we’re doing OK,” she says.

“If I thought it would affect our business I would be all over it, but I have found it doesn’t even come up,” she says.

In general, Orfield-Skrivseth has found that people are remodeling within their means now. This can mean either knowing they have only $20,000 in the bank so they keep it to a small job that’s that, and they don’t exceed that amount. Or, they have $200,000 available and that’s what they spend. Now most clients pay with cash with money they have saved up.”

 

Trish Schroeder

Director of Business Development

Schroeder Design/Build

Fairfax, Va.

schroederdesignbuild.com

Late in 2012, Schroeder Design/Build in Fairfax, Va., was hosting an open house, and mailed some postcards to promote it to the local community. One of the recipients worked at a local bank, and contacted Trish Schroeder, director of business development, but not about the open house.

“[Joe the banker] said I think we might have program that works well for your clients,” Schroeder explains. So, Joe now works with Schroeder providing financing for remodeling and building projects. “There’s nothing in particular we gain from going through Joe. For me it’s more about keeping my ear to the pavement and understanding what’s out there for my clients. Also, this bank understands the importance of timeliness as it relates to construction. Plus, I now have a contact person I communicate with, which means I have a little better access to financial status.”

Being a smaller bank, they have a higher threshold of what they expect from the consumer. Schroeder clients still tend to collect three proposals from banks, but they typically learn quickly that despite the higher threshold, Joe’s services are much more user friendly than at other banks. “I feel confident that I’m putting my clients into direct contact with someone who handles our industry.”

Joe specializes with George Mason Mortgage renovation loans. “First they qualify prospects, then once there’s an estimate Joe would take that estimate and qualify clients based on it. If they have a good credit rating and their house appraises correctly, Joe’s bank will finance up to 100 percent of the project cost. That’s back to what it was like before [the collapse of] 2008.”

This isn’t Schroeder’s first partnership with a bank. “We used to partner with banks to offer financing. They did thorough background checks on us to make sure we were financially sound, because they wanted to build a solid relationship with us. They helped sell us as much as we helped sell them. That guy retired and moved away, and plus that institution doesn’t offer that same program anymore. I’m glad to be working with a bank again.”

 

Bill Simone

President

Custom Design & Construction

El Segundo, Calif.

remodelwithus.com

When Bill Simone founded Custom Design & Construction in El Segundo, Calif., in 1985, he also founded Custom Funding Inc. to provide funding and financing to its clients. With help from his business partners, Simone was able to launch his very own private bank, of sorts, and grow it and CD&C over the years. “Our philosophy is to reinvest profits into the company, to offer financing option as a tool in our belt, to help client accomplish the project,” Simone says.

“We haven’t said no to a client, ever. They fill out an application like they would for any other bank, but that’s where it ends with any similarities. Most importantly, we can make any decision we want. It’s really simple for clients because we tailor their financing program to their needs. We can give them a long-term loan for either 15, 20 or 30 years, all fully amortized.”

The process is seamless to the client, like it would be if they were buying a car, Simone explains. “You’d pick the make, model and color of a car and sit with a salesman in a closing room. The money guy says how much down payment is needed and what the finance terms will be, the client signs the paper. Then you drive a car off the lot and in 30 days you get a payment book in the mail from someone you don’t know. We do the same thing for our clients. It works the same way.”

Custom Funding Inc. has saved the day for many of Simone’s clients, including one couple that was about to begin phase two of their project. “It was a rather large project, and the client had a line of credit to pay for it. Phase two was slated to begin on a Monday, so the parents let the kids graffiti the kitchen cabinets and basically destroy the kitchen. That Saturday a letter arrived informing them that their line of credit was frozen. We received a rather panicked phone call from the couple asking what could be done. We said, ‘Don’t worry, we have a solution,’ and we financed that portion of the project. End of story.”

Another benefit to offering private financing is the message it sends to clients. The message is, if a company is willing to put its own money into a client’s home it demonstrates: 1) the financial stability of our company; and 2) we believe that we can do what we say we can do. It’s a subtle yet powerful hidden benefit.” Additionally, the financing arm of the business has provided an income stream during slow times in the housing market.

Simone has seen many changes in the way money is used in the housing market in recent years. “Back in the heyday in 2006, 7 and 8, about 70 percent of our projects were financed. Sometimes all of a project, sometimes partially. After the economic turmoil, people remain afraid to finance anything. First, they don’t believe we’d finance them, and second, they’re afraid to bite off more than they can chew. We’ve also seen the scope of projects come down, too. And they’re more utilitarian than over-the-top splurge projects. However, now we’re seeing it come back again. Not to where it was, but it’s creeping up again to where about 40 percent of projects are financed.”

 

Rick Wuest

President

Thompson Creek Window Co.

Lanham, Md.

thonpsoncreek.com

Thompson Creek Window Co. in Lanham, Md., has experienced tremendous growth during the past decade, which is partly attributed to high-level strategies such as sticking with its business plan and remaining aggressive about gaining market share. One of the lower-level tactical efforts that has helped growth has been the company’s ability to offer a menu of financing options to meet the needs of all of its clients.

An exterior remodeling firm, roughly 45 percent of Thompson Creek’s window, roofing, siding and gutter replacement projects are financed. Of that 45 percent, roughly 90 percent are filtered through GE Capital’s program. The approval rate is about 75 percent, which is pretty good if you ask Rick Wuest, president. “Occasianlly we have to go to other lending source in that case, or if the value of the job is beyond GE’s limit [$25,000]. But GE’s program is easy to understand and easy to train a sales team about. It works well for us,” Wuest says.

Wuest knows how valuable it is to offer a menu of financing options to clients. “Most people don’t have disposable savings to handle the jobs they’re hiring us for. The financing we offer gives them a tool to use, so they can do the complete project now and pay for it over time. With cash maybe they’d only want us to replace half their windows now and half maybe years later when they have enough cash again to do the rest of the windows. With financing, they can do everything at once and spread their payments out so they’re comfortable with them, and still have all their savings intact if they need it,” Wuest says.

“And even if they did have the cash to pay for it all, they don’t have to. If they finance the work, there’s no prepayment penalty, so they can pay it off at any time. But again, they have the flexibility and comfort of not having to pay it off at once, just in case something happens and they need their cash for an emergency,” he adds.

The average size of a Thompson Creek job financed through GE Capital is 20 percent higher than that of cash customers, which points to the contribution that financing has made to the company’s growth.

“What we like about GE Capital is their value menu that helps every kind of client we get,” Wuest explains. “For the client that needs a low monthly payment, we can offer a low payment plan. If a low interest rate is important to a client, we can give them the lowest competitive rate possible. Or if someone wants a deferred interest plan, we can do that, too. The fee to us as the remodeler is the same with any plan, so there’s never a situation in which a sales person might be compelled to put a client into a plan that’s not in the client’s best interest.”

Offering financing comes with a few headaches, however, such as having to train a sales team on the financing options, plus the fees associated with offering it in the first place. GE Capital helped train Thonpson Creek’s sales reps, and spent time getting the remodeler up and running. “They even provide great reporting and metrics to help us do better moving forward,” he adds.

The fee Thompson Creek pays to offer financing can be compared to that a retailer pays to accept payment with a credit card, Wuest says. The good news is, he adds, is the flexibility provided to clients by the financing helps boost the average sales value which offsets the fee, ultimately making it a profitable venture.

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