Many contractors offer financing through banks, so they assume no risk if a customer defaults on payments. Dave Conner, CFO, Harrell-Fish Mechanical Contractors Inc., Bloomington, Ind., said the ability to offer financing in the residential sector is extremely important.

“On the residential side, we expect the large projects to be financed,” Conner said. “The expectation is that clients need that financing, so our sales staff on the residential side needs to understand the financing options available to them and really need to ask those questions up front.”

Commercial Time

Due to the size and scope of most commercial projects, it is not typical for commercial contractors to offer direct customer financing. Conner said the expectation is the customer, as part of their due diligence and planning, already has financing in place.

That sentiment was echoed by Jim Maidlow, vice president, LMC Service Solutions, Anderson, Ind., who said his company offers limited in-house financing along with manufacturer leasing programs and some bank financing. He acknowledged that most commercial customers have a credit line or cash on hand for projects and noted that only a fraction of customers they’ve offered financing to have utilized it.

“The ones I’ve found that are seeking financing typically can’t get approved,” Maidlow said. “They’re the ones who would gladly buy from anybody that can offer them financing because they can’t get it anywhere. Those are lost causes. I am very surprised there aren’t more companies out there that would jump on the financing deal, but I don’t think it’s as popular as we thought it would be. It’s just surprising.”

Conner said Harrell-Fish does not offer direct financing, but offers assistance in the form of flexible payment terms, helping connect customers with direct commercial lenders, demonstrated energy savings, and advocating for tax abatements.

“We don’t have the capabilities in-house to perform expensive credit checks and things like that. We’re in the business of providing excellent customer service, but not necessarily being a credit analyst, so to speak,” Conner said.

He further noted that, in limited circumstances, the company’s offered financing as a lifeline.

“The economy hit our customers hard, so instead of point blank having to turn away our customers, we wanted to work with them. They still need our services, especially on the industrial side, to continue to produce, so they asked us to help them through the situation. In order to retain relationships and be good businessmen, we simply found a way to modify our relationship because we didn’t want to lose customers.”

Both Maidlow and Conner said they will offer short-term in-house financing, for typically less than a year, on an extremely limited basis to long-time customers. Maidlow noted that such favors have helped attract repeat business.

“We have a customer for whom we’ve done a lot of work, and we have service contracts with, that doesn’t have a very well-funded budget,” he said. “We know them really well. A couple of times they’ve needed things but didn’t have it in the budget, but they could make payments, so we went ahead and financed them in-house.”

When it comes to flexible payment terms, Conner said his company will typically ask for a certain percentage down and receive final payment in a few months. He also helps companies hook up with manufacturers’ leasing departments, if necessary.

“Sometimes the large equipment providers have their own credit departments,” Conner said. “They’re in the business of having a credit analyst on staff, so they get the risk, but they are also in a better position to evaluate financial risk and make that determination.”

Maidlow said LMC often uses Trane Leasing Services as a way for customers to get a job done, offering anywhere from two- to six-year terms, with seven-year terms available for projects in excess of $1 million.

“They fill out their application and email it back to Trane, so we don’t have to see their financial information, which is nice, and then Wells Fargo does all the business with the customer. When it’s done, they transfer money into our account. It’s a pretty neat thing,” he said. “I’ve had a restaurant chain use that, as they needed equipment at different locations. They already had a history with the program and it made it really easy to call up and get another one. We install it and we get our money. No waiting.”

Maidlow also said Trane and Wells Fargo allow other items to be tacked on in addition to whatever equipment is being sought. Things like exhaust fans, roofing, signs, and windows, not to mention add-ons that can help contractors long term.

“One of the things we’ve tried to do with people is put a maintenance contract in with it,” he said. “You definitely add the extended warranty, so that the equipment is under warranty the entire time their lease is in effect, until it’s paid for. There’s some neat things you can do that way.”

Service + Replacement

Cheatham said Service Experts will always look to see what’s on the horizon when it comes to financing, especially as the economy continues to recover.

He said approval rates were around 85 percent before the 2008 recession. Following the economic fallout, that number dropped to around 60 percent, before rebounding to nearly 80 percent today.

“If we can stay around eight out of 10 in today’s economy, we feel pretty good about that,” Cheatham said.

The ability to offer financing to residential customers is important because most are not prepared to undertake such a large project, as most customers are very unlikely to have money set aside in their long-term budgets for a heating and air conditioning replacement.

“When those expenditures come, people are usually a bit more unprepared in their daily cash flow,” Conner said. “Most clients and individuals are not budgeting for a wholesale HVAC replacement in their houses.”

Not only that, the customer service in offering financing is just as important. It creates trust between contractor and customer, especially when the contractor is knowledgeable and helps the customer through the process.

“(Offering financing) is vitally important,” Cheatham said. “We’ve been able to grow our financing over the years. We hit different targets and we always look to grow them, because it makes the customer more comfortable when they don’t have to hand over any out-of-pocket money right away.”

Conner said offering financing helps his company be seen as a total solution provider in the eyes of the customer. But, he makes sure the company is careful when it refers a commercial customer to a lender, because if the customer gets burned by the lender, it could hurt the company’s relationship with the customer.

Still, offering bank financing is a crucial move for contractors, especially ones who do residential work.

“As smart businesspeople, if we can minimize our risk, we’re looking to do that,” Conner said. “That’s why we always prefer to put the burden of credit risk on someone else. If that means we can make the connection for them, great, that’s a win-win. They still get the project and we don’t bear the credit risk.”

Publication date: 9/16/2013 

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