Is In-House Financing a Good Option for Your Home Improvement Company?

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In a time of skyrocketing inflation and limited consumer buying power, providing customers with flexible financing options is essential for the success of any home improvement organization. As the cost of providing services increases, it’s no longer feasible to lower the service cost. One strategy to make services more affordable is offering in-house project financing. In this article, we’ll cover the basics of this type of financing, its advantages and disadvantages, and alternatives to help you decide if in-house financing is the best solution for your home improvement company.

What is In-House Financing? 

In-house financing is a type of financing where a company provides its customers with a loan to purchase its goods or services. Essentially, it allows the company to act as the retailer and the loan issuer. The biggest benefit of this kind of financing is that it enables customers who may not have been able to afford the upfront cost of a home improvement project to spread out their payments over a longer period.

However, several important factors must be considered before establishing an in-house financing program. Let’s explore the pros and cons of offering in-house financing.

Pros of In-House Financing:

  1. Your organization sets the credit restrictions: By setting your own credit restrictions, you have more control over which customers are eligible for financing. This can open up new demographics of customers who may not have been able to afford your services upfront.
  • Borrowers are limited to buying only from your business: Once a customer takes out a loan, they are limited to purchasing only from your company.
  • You determine how simple the application process is: A simplified and fast application process can be a strong selling point to customers. By controlling the application process, you can make it as user-friendly as possible.

Cons of In-House Financing

  1. More risk involved for your organization: Since you’re providing the loan, the risk of default falls on you. You could face significant financial losses if a customer fails to repay the loan.
  • Your organization will need extensive capital to be successful: Providing loans requires a significant amount of capital. You’ll need sufficient funds to cover all the loans you issue.
  • Collections of non-payments are your responsibility: If a customer fails to repay their loan, you’ll be responsible for collecting the debt. This can be time-consuming and costly.
  • Creating a successful in-house financing program is cumbersome: Establishing an in-house financing program requires considerable effort and resources. You’ll need to set up a system for issuing loans, managing repayments, and handling defaults.

What are the Differences Between In-House and Third-Party Lending?

In the context of financing, in-house and dealer financing can sometimes be confused as being interchangeable as they both refer to situations where the company selling the product or service also provides the financing to the customer. However, there is a subtle difference between these terms, which primarily centers around the source of the loan and the degree of control over the financing terms.

With in-house financing, the company selling the goods or services also provides the loan. Dealer financing, although similar, typically involves a third-party financial institution. While it might seem that the dealer is providing the loan, it comes from an affiliated financial institution, such as a bank or credit union.

In dealer financing, a company (like a home improvement organization) partners with one or more third-party lenders to offer financing to its customers. The company sells the product or service, but the lending institution provides the funds and sets the loan terms. The dealership acts as a middleman between the customer and the financial institution.

In this arrangement, the dealer can still influence the terms of the loan and has the advantage of offering on-the-spot financing options to customers, but the risk of loan default is primarily handled by the third-party lender.

While in-house and dealer financing allow companies to offer financial solutions to their customers, the source of the loan, the management of the risk, and the level of control over the lending process differ. When deciding between in-house or dealer financing, businesses must evaluate their financial capabilities, risk tolerance, and customer needs.

If in-house financing doesn’t sound like the right fit for your organization, we can help.

Partner Forward with Salal Dealer Direct

We team up with contractors nationwide to provide their customers with affordable financing for various solar and home improvement projects.

We can offer some of the most competitive rates and dealer fees because we’re part of a member-owned credit union. That means our profits return to our members—and business partners—through lower rates and fewer fees.

Our Dealer Direct Financing programs feature:

  • An online loan application with fast credit decisions and a high approval rate.
  • Terms and loan amounts are available to fit various budgets and project sizes.
  • Partners pay ZERO dealer fees on our standard program.

How to Start Offering Salal Dealer Financing to Customers

We’re serious about helping your business grow with fast funding times and personalized support from a dedicated and experienced team of lending specialists. To get started, our dealer application process requires these documents:

  • Completed dealer questionnaire
  • Current income statement and balance sheet
  • Copy of business license and/or contractor’s license

Learn more about becoming a Salal Dealer Direct Partner.