Getting Your Customers
Off the Fence!
Drive your sales of energy efficiency
improvements with fixed monthly payment financing
Become a Keystone HELP Participating Contractor
PENNSYLVANIA’S HOME
ENERGY LOAN PROGRAM
Getting Your Customers Off the Fence!
•
How and why monthly payment financing closes more sales
•
Different types of financing options / Pros and Cons
•
In the current “Perfect Storm” of energy-cost concerns and tougher credit
regulations on lenders, consumers more than ever need simple financing options to
make energy improvements
•
70% of all Home Improvements up to $15,000 are financed in one way or another,
90% of improvements greater than $15,000 are financed
•
Most consumers are motivated by necessity when it comes to energy efficiency (the
Reactive consumer who needs to replace a broken furnace) – this is 90% of the
energy efficiency market and can’t be ignored
•
Proactive improvements are growing, but contractor most grow faster to support this
market
•
Energy-efficiency improvements are most often sold, not bought
•
Keep it simple for contractor and consumer – the goal is work performed and energy
savings, not the number of audits conducted or proposals written
• The amount of disposable cash available to the
average American Homeowner
$3,000 - $7,000
• The amount of current debt owed by the same
average American Homeowner
$8,200
• What is the average price for your installations?
$?,???
The Result – Sticker Shock and Staying “On the Fence”
•
Most homeowners purchase 1-2
HVAC or whole house
improvement systems in their
lifetime…usually after current
system or improvements fail
•
3
rd
or 4
th
largest purchase a
homeowner will ever make
–
Home
–
Vehicle
–
College
“Can We Afford It?”
The #1 Issue for
Consumers
Considering Home
Energy and other
Reactive Customers - Welcome to the “Twilight Zone”
”
HVAC
•
Typical home improvement installations ($1,000 to $25,000)
fall into the consumer’s financing “twilight zone” - too big for
a credit card, too small for a home equity loan
•
Customer doesn’t want a lien on their home
•
Time sensitive – consumer needs work done ASAP
•
Contractor-driven
•
Promotional ( “Teaser Rate” or “Same as Cash”) financing is a
great option for buyers with readily available cash, but does
not address buyers who are looking for longer term
affordability for a major capital purchase
•
Borrower wants longer term or lower rate than they can get
from bank
PROACTIVE Consumer - The “Thinker
”
•
More project driven, less time sensitive
•
Bigger project costs
•
More customer thought, engagement and foresight
•
Loans above $15,000 typically involve home equity
financing which may be difficult in today’s economy with
limited home equity and bank regulatory restrictions
Monthly Payment Affordability is often the KEY
for both REACTIVE and PROACTIVE Consumers
•
Customers may have an interest in more efficient systems or improvements
but may be put off by higher price.
• Average American current available cash is $3,000 to $7,000…..What is your
average installation cost?
•
If a contractor’s closing ratio is 40%, what’s happening to the other 60%
-why aren’t they buying?
• Is it the Contractor’s reputation?
•
Is it the Price?
•
In today’s economy are they scared of “gimmick” financing?
•
Or – is it simply that they are not being given an affordable monthly
payment option that comfortably fits their budget and can be offset by
energy savings?
How are Most Large Capital Purchases Marketed and
Paid for Today?
•
“Promotional Financing” (Same as Cash, 0% for a limited time etc) may be
a great sales tool for someone who already has the cash or for a smaller
ticket item.
•
Are you selling $1,000 big screen TVs? Or something a little more
expensive?
•
How is your Cell Phone sold to you?
•
If you didn’t have $8,000 today how are you going to get it in 6 months
to avoid 18 to 32% interest rates? Scary proposition for most consumers
•
Fixed Monthly Payment options allow you to bundle services and present
Good/Better/Best Monthly Payment Options and show the offset with
energy savings
Monthly Payment Financing vs. “Promotional
Financing”
So What are the Financing Options for $8,000?
Real Estate Secured Options
Type
Source
Terms
Pros
Cons
Second Mortgage /
Home Equity Line of
Credit (HELOC)
• Banks
• Credit Unions
• Mortgage Companies
• Typically adjustable for lines of credit
• Fixed rates for second mortgages
• Easy acces s if you already have an established HELOC
• Typically lower rate than unsecured
• Tax-deductible
• Unless you already have a HELOC, closing costs and time to set up – could take days or weeks
• Typically involves a bank visit and “closing”
• You need to have home equity! (PowerSaver goes to 100% LTV)
First Mortgage
• Banks
• Credit Unions
• Mortgage Companies
• Typically fixed rate and longest term
• Typically lowest rate
• Great if you want to “roll-in” energy efficiency improvements on a refi or new home purchase
• Special provisions for PowerSaver
• Tax-deductible
• Not for “fast” or time sensitive improvements
• Closing costs, title insurance etc etc - could take weeks
• Typically involves a bank visit and “closing”
• Loan to value limitations (except for PowerSaver)
So What are the Financing Options for $8,000?
Unsecured Options
Type
Source
Terms
Pros
Cons
Credit Cards
• Borrower • Variable rate and payment • No real work for contractor – just swipe!• Most consumers don’t have enough available credit
• Monthly payment can be high – $200 on a $8,000 job (2.5%)
• Fees to contractor
“Promotional
Financing” (0%,
Same as Cash etc)
• Manufacturers Programs
• Finance Companies
• Variable rate and payment which can escalate to high interest rates after the promotional period.
• Often “instant” approval
• Typically limited paperwork
• Great to get buyers with cash off the fence
• Possible “bait and switch” reputational risk for contractor
• High fees for contractor unless subsidized by manufacturer
So What are the Financing Options for $8,000?
Unsecured Options
Type
Source
Terms
Pros
Cons
“Straight
Financing”
• Manufacturers Programs • Home Center programs • Finance Companies • An apparent fixed rate and payment but can move to variable rate and payment subject to the terms of the agreement• Often “instant” approval
• Typically limited paperwork
• “Risked Based Pricing” with different rates for different credit profiles can result in more approvals
• Contractor need to be fully involved in credit process
• Not really fixed rate or payment - can potentially change with delinquency, market changes or other factors
• Potentially high fees to contractor unless subsidized by manufacturer
• Risked Based Pricing” with different rates for different credit profiles can result in potential customer dissatisfaction and difficulty in quoting monthly payment
Standard
Bank/Credit
Union
Installment
Financing
• Banks • Credit Unions• Fixed rate and term for life of loan
• Typically shorter term
• Typically fair market based interest rate – may be risked based
• No fees to contractor
• Lender typically handles all paperwork – no contractor integration
• May not be as fast
• Typically involves a bank visit and “closing”
Energy
Efficiency
Installment
Financing
• Energy Efficiency Lenders • Program Partners• Fixed rate and term for life of loan
• Typically longer term means lower monthly payment
• Typically “one size fits all” fair market based interest rate or below market Low or no fee to contractor
• Marketing credibility for contractor (“utility program” etc)
• Contractor integrated into lending process but not for contractor who wants to “control” credit process
