How to offer financing as a contractor—and why you should

With every HVAC equipment manufacturer indicating overall costs will jump 18-25% in 2023, how you overcome customer concerns about pricing will have a much bigger impact on your bottom line. What if your customers had the option to pay for contractor services over a number of months?

Contractor financing can be a win-win for you and your customer: you grow sales, and your customer gets the home repairs and maintenance they need at a monthly cost that works for them.

Discover how you can start offering this value-added service for your business.

How contractor financing can grow your business

Some homeowners may be interested in a more efficient HVAC system that could save them money in the long run but don’t have the funds to make large home improvements, while others just prefer to keep their savings padded.

Instead of losing a potential customer that can’t afford your service all at once, consider offering financing and breaking up that cost over a longer period of time. It’s often easier for a homeowner to add a small payment to their monthly budget than it is to incur a large repair or equipment replacement cost upfront.

So should contractors offer financing and give customers the option for monthly payments? The short answer is yes.

Payments give you an extra tool to close the sale, as well as provide an advantage over other contractor businesses that don’t have these options. A leader of one HVAC company also says that customers are more likely to upgrade when they can spread out the purchase into monthly payments.

Explore two benefits of offering your customers financing for construction or HVAC projects.

Offering financing can help close sales.

Chris Klijanowicz, CFO for a heating and air conditioning company located along Virginia’s east coast, said his company boosted sales by offering financing based on customer demand.

“Not everyone has $10,000-$15,000 laying around to spend on a furnace or air conditioner, and financing allows customers to pay for such a large investment over time,” he said. “It’s been extremely beneficial for us and our customers.”

Klijanowicz added that customers who finance are more likely to consider accessories and system add-ons.

“Customers almost feel relieved to be paying $99 a month; they feel their budgets can handle that amount,” he said. “In our experience, once we sell the accessories, upgrades and add-ons, that $99 monthly payment increases to $130 or so, which is still an acceptable amount to homeowners.”

Payment options provide a competitive advantage.

Despite the benefits, many contractors still do not offer credit or monthly payments, and that may very well lower their profit ceilings.

Since Doug Little co-founded Payzerware, an all-in-one financial and service management tool designed to help contractors grow their businesses, he’s discovered that HVACR contractors consider discussing credit and payments taboo.

“There is a hangover in the trades that financing is difficult,” Little said. “Contractors are fearful that they won’t understand the numbers, won’t be able to do the math, and won’t be able to comprehend the interest rates and the equations that come with it. Programs like Payzer make financing simple. We can offer loan approval on a mobile app in less than 30 seconds.”

Some contractors are worried that customers will fail to qualify for the terms of a loan, so they simply choose not to offer financing at all. Klijanowicz said his company always strives to provide assistance to customers who are unable to obtain a loan, including working with lower credit scores and offering repair options for those who want them.

“I can’t imagine any reason why a contractor shouldn’t offer financing,” Klijanowicz continued. “There are plenty of plans out there with low enough costs and dealer fees that everyone should offer it in some form. Sure, there are some fees involved, but in a very short period of time, it’ll pay for itself.”

How to offer financing as a contractor

There are a few ways to offer these options to your construction or HVAC customers. You can extend credit yourself, which includes checking credit reports and setting up monthly payments. In this situation you take on all the risk in the event a customer stops paying, but you’ll also reap all the rewards, such as interest payments.

Another option is to partner with lenders from financial institutions, which could allow you to present a mix of options, or use third-party lending. Depending on the company, they may take a percentage as a fee in addition to the risk of default.

Tips to offer financing to your construction and HVAC customers

Discussing credit scores, monthly payments and interest may be new to you, particularly in the context of your contracting business, but the conversation is worth it. Check out two tips companies learned when they started offering finance to their customers.

Make contractor financing part of the sales conversation.

Ron Hall, a sales manager for a residential heating and cooling contractor in the greater Philadelphia area, said his company offers financing on every lead as part of the normal sales conversation. This has led to the company financing more than 150 projects a year.

He says that before they even offer a price, they provide three payment paths: credit card, check and financing. While 150+ projects is a significant number of jobs, Hall said that accounted for only 17% of the company’s contracts because most customers are able to pay without financing.

“You don’t want to push financing options too hard, because you don’t want to offend anyone who’s planning to pay cash,” he continued. “Also, savvy customers recognize that financing carries heavy dealer fees — anywhere from 2-3% on a short-term loan to 15% on a 10-year loan — so they’ll request a discount when paying cash.”

Hall added that he doesn’t believe many HVACR contractors are offering financing systematically with intention nor are they running the numbers to ensure they’re profiting off the process.

“Contractors should know what their average sales numbers are,” Hall said. “They should look at their total dollars financed and total gross dollars sold and create an average. That average should be projected on all transactions to cover costs, regardless if a consumer purchases with cash or through financing.”

Explain that contractor financing means payment options.

Every customer is different, and so is the payment path that will best fit their situation. Some have plenty of money in the bank, while others prefer to pay for large-ticket items over the span of several years. Letting clients customize their options can help overcome barriers to purchase.

“In the trades, financing is often viewed as a dirty word,” Little said, adding that both buyers and sellers perceive the term negatively. “Therefore, we encourage contractors to avoid the word altogether.” He suggests saying payment options or monthly payments when discussing financing a large transaction.

Grow your business with contractor financing and more

With the continued threat of steel and aluminum shortages, Department of Energy efficiency requirements increasing the baseline costs of HVACR equipment and the recent spike in demand for indoor air quality, financing will play an increasingly important role in the success of HVACR contractors and their customers.

Ferguson can help you find opportunities to grow your business with payment options. To discuss which contractor financing paths are available in your area, contact your local Ferguson.