Financing HVAC services can be tricky, especially when customers have credit challenges. Heating and cooling systems are essential, but the high costs make it hard for many people to pay upfront. As a result, HVAC companies are looking for ways to offer flexible financing options to serve more customers and keep their businesses growing.
Thomas Murphy, an expert in financial services, plays a key role in this area. As the managing member of IHCS Finance and director of finance at Air Around the Clock, he focuses on finding practical finance solutions for home improvement services.
His background in retail finance, home improvement, and rent-to-own services makes him a valuable source of insights for companies facing financing challenges.
In this article, we will cover different financing options for HVAC services, especially for customers with credit issues. We’ll explore how concierge finance programs help HVAC companies offer more flexible payment plans.
Moreover, we will also look at lease-to-own models, which let customers access essential services without high upfront costs. Lastly, we will learn how HVAC providers can manage financing processes effectively, improve customer satisfaction, and grow their businesses.
Our Sponsors:
Our Affiliates:
Options for Financing HVAC Services for Customers with Credit Challenges
Securing financing for customers with lower credit scores can be tough, especially for essential services like HVAC. Many people struggle to get financing due to credit issues, causing customers and service providers frustration.
Companies specializing in financing for credit-challenged customers have experience in sectors like retail furniture, jewelry, and rent-to-own businesses. They create systems where even those with low credit can make necessary purchases, often by partnering with retailers to lease products back to the customer.
Integrating Financing Solutions in HVAC Services
HVAC companies face similar challenges when financing customers with low credit scores. The goal is to help these customers secure financing while protecting the service provider’s revenue.
Some HVAC companies have developed finance departments or partnered with specialized financing firms to address this issue.
Concierge Finance Programs
Concierge finance programs act as a back-office finance department for the HVAC company. Upon identifying a customer’s need for financing, the technician can transfer the case to this finance department.
The finance team then conducts a soft credit pull to find the best financing options based on the customer’s credit situation.
- Prime and Subprime Options: The finance team assesses if the customer qualifies for prime, second-look, or tertiary lending options.
- Tailored Financing: They work to find suitable financing for different scenarios, including those with bankruptcies or non-homeowners.
- Closing the Deal: By handling the financing process, the finance team ensures the service provider can close the deal without directly involving themselves in complex financing issues.
Instant Decision Application Process
An alternative is the Instant Decision Application Process (IDAP), a tablet-based system that allows technicians to input customer information and receive immediate financing decisions. This method streamlines the process, helping both the technician and the customer.
Financing options range from super-prime to subprime and even lease-to-own solutions. The key is to find a viable option that secures the best rates for the customer while minimizing lender fees for the service provider.
Lease-to-Own Options for Financing HVAC Services
Lease-to-own financing is a growing trend in the HVAC industry, especially for customers with challenging credit. This approach allows customers to secure necessary services, like heating or cooling, without needing high credit scores. It’s especially popular in markets like Canada, where “rent-to-own” models are already well-established.
Rent-to-Own vs. Lease-to-Own
Rent-to-Own:
Customers make monthly payments for a service, such as HVAC or water heaters, with maintenance included. They don’t own the equipment; it functions like a subscription.
The provider handles repairs and replacements, similar to internet or cable services. This model is often used for higher credit customers.
Lease-to-Own:
Suited for credit-challenged customers, this model involves the leasing company buying the equipment and leasing it back to the customer. Payments typically total about double the equipment’s value over a period (e.g., 48 months).
Though payments can be high, it’s an option for customers with limited financing choices, especially in hot climates where HVAC is crucial.
Managing Defaults and Payments
In lease-to-own agreements, the equipment technically belongs to the leasing company. If a customer defaults, the company can reclaim the equipment, but this is a last resort due to associated costs. Instead, companies use the threat of repossession to encourage payments.
Lease-to-own companies have developed expertise in managing these high-risk clients, offering extended payment terms, sometimes up to 96 months, to make monthly payments affordable.
Fee Structure and Service Provider Benefits
- Success-Based Fees: Lease-to-own finance companies charge a success-based fee, typically between 2.5% to 2.9% of the financed amount. The service provider only pays this fee if the financing is successful and the customer approves the payment plan. If financing falls through, the provider owes nothing.
- Payment Strategy: Customers buy based on manageable payments. For customers with good credit, 0% interest options are available, though they involve fees that must be factored into pricing. For those with less favorable credit, lease-to-own can secure necessary services, even with higher overall costs.
Educating Service Providers
Finance companies help service providers understand these financing models and prepare them to handle various customer situations. They guide providers on pricing strategies, helping them avoid financial pitfalls, like offering a cash price and later increasing it due to financing complications.
Managing Credit Card Fees for Financing HVAC Services
Credit card fees often concern service providers. While customers prefer card payments for convenience and rewards, these fees can reduce profits. Some businesses offset fees by charging extra, which can seem unfair if not communicated.
Transparency about additional charges is crucial. When customers use multiple credit cards for large payments, they may max out their credit, limiting their ability to make other purchases. Financing helps by spreading out expenses over time, focusing on manageable payments rather than the total cost.
In the HVAC industry, providers act like finance managers, guiding customers through financing options. Offering both prime and subprime plans can increase sales and customer satisfaction.
Additional Services and Benefits
Beyond financing, some companies also offer additional services:
- Warranty Services: Some finance companies work with manufacturers to offer extended warranties. Customers can add these to their monthly payments, providing peace of mind.
- Commercial Financing: Financing options aren’t limited to residential customers. Commercial financing can be used for businesses like laundromats that need HVAC services but don’t qualify for consumer financing.
- Marketing Support: Finance companies can also help service providers market their financing options, helping them reach more customers and grow their businesses.
Addressing Credit Sensitively
Customers with poor credit may feel embarrassed when discussing financing. This embarrassment can make the process uncomfortable for the customer and the technician. By involving a finance expert early in the process, customers can discuss their credit situation privately and find suitable options without pressure.
Finance teams use soft credit pulls and a series of questions to accurately assess the customer’s financial situation. This approach helps direct customers to appropriate lenders, whether they need prime, subprime, or lease-to-own solutions.
Know Before You Go
Some finance companies offer a “know before you go” service. They use soft credit pulls to grade potential customers (A, B, C, etc.) before the technician arrives. This helps tailor the sales approach based on the customer’s credit situation.
For customers with high grades, upselling services like indoor air quality improvements becomes feasible. For lower grades, offering more budget-friendly solutions is advisable. This method helps manage customer expectations and increases the chances of closing the sale.
Pre Qualifying Customers for Financing HVAC Services
Pre Qualifying customers before visiting their homes can streamline the financing process. Some companies use scripts to help service providers introduce the concept without making the customer uncomfortable.
After inspecting the system, the technician can inform the customer that they have been prequalified and offer financing options. Customers can opt out, ensuring transparency and compliance with credit regulations.
Financing Limits and Restrictions for Lease-to-Own
- Eligible Items: Lease-to-own financing is available for full systems, components like condensers or air handlers, and other serialized items like water heaters. Some companies may also cover repairs on serialized items, such as compressors or coils. The financed item must have a serial number and be recoverable if necessary.
- Financing Caps: Different lease-to-own companies have varying limits. One company may finance up to $15,000 over 48 months, while another might finance up to $12,000 but extend payments to 96 months.
- Non-Eligible Items: Items like plumbing repairs lack serial numbers and usually do not qualify for lease-to-own. The item must be an asset that the company can potentially recover.
Expanding Options for Financing HVAC Services and Managing Customer Conversations
Many companies now finance home improvements like roofing, generators, water filtration, windows, and doors. Although HVAC and plumbing are the main focus, the goal is to cover more services over time. Technicians often feel uncomfortable discussing credit and financing with customers.
Having a finance specialist handle these talks can help. They can perform soft credit checks and guide customers through options without judgment, allowing technicians to focus on their work.
With high interest rates and cautious lenders, finance companies update contractors, providing rate sheets and advice. Offering financing options, including lease-to-own, helps contractors turn more potential turndowns into sales, boosting revenue and market growth.
Conclusion:
Financing HVAC services can be challenging for customers with low credit scores, but solutions are available. By partnering with specialized finance companies or using options like lease-to-own, HVAC providers can help customers secure the services they need without straining their finances.
These options allow service providers to maintain steady revenue while offering flexible payment plans. Educating providers on various financing models and involving finance experts early in the process makes the experience smoother for both customers and technicians.
Ultimately, offering diverse financing solutions increases sales, customer satisfaction, and overall business growth.
FAQs
What is the typical interest rate for financing HVAC services?
Interest rates for HVAC financing vary depending on the lender and your credit score. Rates can range from 5% to 25%.
Can I finance HVAC services with bad credit?
Yes, many lenders offer options for those with poor credit, but the interest rates and terms may be less favorable.
Is financing available for HVAC repairs or just full installations?
Yes, many companies offer financing for both HVAC repairs and full system installations.
How long can I finance HVAC services?
Financing terms typically range from 12 to 96 months, depending on the lender and the amount financed.
Are there 0% interest financing options for HVAC systems?
Some lenders offer promotional 0% interest financing for a set period, usually up to 12 or 18 months, depending on your credit score.
What types of HVAC systems can be financed?
You can finance various systems, including air conditioners, furnaces, heat pumps, and ductless systems.
Resources And People Mentioned:
Join the Service Business Mastery Facebook Group for more updates!
This Episode is Kindly Sponsored By:
- Sera (visit their website)
- UpFrog (visit their website)
- CallRail (visit their website)
- CompanyCam (visit their website) Visit CompanyCam and use code SBM for a free 2-week trial, 1:1 training and account setup, and 50% off your first two months!
- MarketStorm (visit their website)
- Lace (visit their website)
- priceguide (visit their website)
Affiliate Links:
- Castmagic (visit their website)
- StreamYard (visit their website)
- IfTTT- 10 Percent off! (visit their website)
- ZyraTalk (Visit their website)
