Should You Offer Consumer Financing?

by [email protected]

Do you offer your clients the option to finance their kitchen or bath project with you? If not, could providing this service increase your potential client base? And, is the potential gain worth the time and effort? These questions were recently put to a sampling of kitchen and bath dealers across the U.S. and Canada in a spot survey conducted by Kitchen & Bath Design News.

In today’s post-recessionary marketplace, the consumer mindset remains cautious; while interest in kitchens and baths seems to be growing stronger each year, closing a sale still takes longer than it did a decade ago, and many consumers continue to favor value-based products over luxury ones. Even as business picks up, diminished home values, tighter credit conditions and a fear of depleting one’s cash reserves continue in many cases to limit project size and scope. Yet despite a still-challenging economy, more than three quarters of those polled do not currently offer consumer financing (see Graph 1).

Equally surprising is the survey’s finding that, of those who do offer this service, the vast majority say fewer than 10% of their clients actually take advantage of it (see Graph 2).



Consumers have historically had a wide variety of options for financing their projects. Some rely on savings or an inheritance; others take out home equity lines of credit; some use credit cards. Different generations often view financing differently, with older homeowners more wary about going into debt, and more likely to rely on personal savings, compared to younger homeowners who seem more willing to use lines or credit, or even credit cards, those polled suggested.

According to dealers surveyed by KBDN, nearly half of their clients (42.6%) rely on personal savings to finance their projects, while slightly more than a quarter (27.8%) use credit cards and another 9.3% turn to home equity loans (see Graph 3).

While a cash-out refinance was a tremendously popular way to pay for home improvements in the early 2000s, the impact of the recession on home prices was so dramatic that this stopped being an option for many homeowners. Home prices are creeping up again, but it has been a slow process, and combined with tighter credit conditions, this seems to have dropped off as a popular option for paying for remodeling. In fact, those polled said a mere 3.7% of their clients used a cash-out refinance as a way to pay for their kitchen or bath project.

Interestingly, while the media continues to report tight credit conditions, the majority of kitchen and bath dealers polled (52.5%) felt getting credit was only of “average” difficulty right now (see Graph 4), while another 22.5% said it was “somewhat difficult,” 10% said it was “somewhat easy,” 10% felt it was “extremely easy” and only a mere 5% viewed it as “extremely difficult.”



On paper, at least, there would seem to be plenty of good reasons for offering consumer financing. The most obvious of these would be to increase the pool of potential clients by making a new kitchen or bath possible for those who might not have readily available cash. In fact, nearly half of those surveyed (47.8%) felt that offering financing has increased the number of sales they make (see Graph 5).

As one dealer explained, “Sometimes you get the person who walks into your showroom to dream; they are hoping to do their kitchen over in the next few years, so they’re looking for ideas, but they don’t plan to go forward with it until somewhere down the road. But when you offer them financing, you can change that timetable so they can start their dream kitchen now instead of waiting for it. It’s a very powerful tool.”

Offering financing also can help with upselling, as it gives clients more wiggle room when they realize they really want that high-end gourmet range, or the custom countertops, or they fall in love with that “wow” element that’s not in their budget. Indeed, 47.6% of surveyed dealers said they believe that offering financing has increased the amount that clients spend on their projects (see Graph 6).

“We are still in that place where there’s a ‘value focus’ with many consumers,” explained one dealer. “That doesn’t mean they don’t want that fabulous custom range hood, or the Italian tile shower, but it’s not in their budget. Offering financing is a way to help make that upgrade possible, and minimize sticker shock by offering a payment plan that feels more comfortable.”



But while offering financing may seem like a no brainer to some, many dealers still feel like it’s not worth the hassle. As one noted, “Conversations about money can be sticky under the best of circumstances. When you’re offering financing, you [have to] ask extremely personal questions about [things that they are] not all that comfortable talking about…it can be bad for the relationship you’re trying to build…and if [they are] turned down for financing, it can create tremendous ill will and you will find yourself bashed on Facebook and all their social media. It’s not worth it.”

Another dealer puts it more succinctly: “I don’t want to be my client’s ‘bank.’”

Finding the right financing company can also be challenging. One dealer reported, “When I contacted a company, they wanted me to put a large sum of money in their account before I could offer financing.”

Another pointed out that she had worked with a financing company in the past, but they had some confusing policies about payment dates, and very harsh policies regarding late payments that soured some client relationships and cost her company long-term referral business. “We had clients who had a bad experience because they didn’t read the fine print, and they hated them and viewed them as something of a ‘scam.” Unfortunately, some of that hatred was transferred to us for recommending them. We didn’t need that kind of bad PR.”

Of those who do offer consumer financing, the vast majority (87.5%) only use one company. “It’s a lot of extra paperwork,” one noted. “We are tight on staff, so we really try to minimize the extra tasks.”

Some dealers who currently offer financing have also questioned whether it’s worth the hassle of all the paperwork when so few clients seem to take advantage of it. One dealer stated, “Logically, you would think people would want it because it’s [been] tough out there for so long, but we just don’t seem to have a lot of call for it…we don’t even bring it up much anymore because the interest has been so minimal.”



Of course some of the lack of interest in consumer financing programs may have to do with the marketing of these programs – or the lack thereof. Indeed, for many firms that do offer financing, it’s something of an afterthought, being communicated inconsistently, depending upon which designer/salesperson they work with, or how they find out about the company.

Of those polled, only 6.25% said they mentioned their financing option in their print or online ads, and a mere third (31.25%) said they promoted their financing program on their Web site or via social media (see Graph 7). Some 25% noted that they promoted it through showroom displays and signage; 25% mentioned it during the sales process, and 12.5% said they only mentioned it if the client asked.

“It’s tricky,” one dealer explained. “Talking about finances is a minefield. You can offend them by bringing it up because it can come off wrong. It can sound like you are questioning whether they can afford your services. But if you don’t bring it up, you can lose them if they don’t have the money and are too embarrassed to say so. A lot of times you can tell whether or not money is a concern, but not always. So we don’t bring it up verbally but do have signage to let people know it’s there.”

Indeed, communication seems to be the biggest factor at play when it comes to consumer financing, according to several of those polled. The bottom line, most agree, is that it can be a good tool if clients are aware of the option, but tact must prevail in any financial conversation. And, they add, the financing company must also conform to the standards of the design firm as far as honesty, integrity and good customer service.

As one dealer concluded, “Once you bring them in, they are representing you. Make sure you work with a company that will reflect well on you. You are also taking on a responsibility to make sure the client understands the terms of the financial agreement, so be prepared to commit some time to learning everything you need to know so you can answer all their questions.”

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