Ask the Experts | Handling Declined Credit

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Question: I just signed up for financing. I’m worried customers will get turned down. What’s the best way to handle that with them?

Drew Cameron; President, HVAC Sellutions & Energy Design Systems, Inc.:

Typically most of the financing platforms that we get contractors hooked up with through the manufacturers or through EGIA, we only get about 74% of those people or a little more getting approved, I think, with A or B credit, in my experience. Second-look programs can add about another 15 to 20% of people being approved. I know there’s the lenders that are going to specialize in your C and D paper, where people have some credit dings, and whatnot there.

So, how do you handle this? I think you have to have multiple lenders first, that do the A and the B paper as well as the C and the D paper for the second-look. Because their approval rates vary from month to month, and any time during the month you will find that these lenders also will vary their credit criteria from month-to-month and during the month – meaning if they find that they’re approaching their goal, their sales objectives, for the month – because I’ve spoken with them – they’ll find they don’t have to take as much risk later in this month, so they’ll tighten up their credit protocols later in the month. So you may find that someone who gets turned down at the beginning of one month actually gets approved at the start of the next month, just because you may find the lender is trying to be more aggressive until they reach their sales goals.

So certainly work with multiple lenders, because you may find in some months one will approve and one won’t, and then vice versa in the next month. I also recommend partnering with a local credit union. Local credit unions have in their charter, as do all banks, that they have to work with the local community, and they tend to know the people in the community – or at least know the houses and the areas and the employers in the area – a little bit better than some of the big national banks. So going through the local credit union you may find that you can get somebody approved who then opens an account in that bank and has a direct debit situation there. So I always recommend having a local credit union in your financing mix. They can also maybe do some refis and home equity loans for you, if somebody has to put their house up for that.

Financing is also credit cards, so make sure you’re accepting credit cards. And one that I find a lot of contractors don’t look into is something called Fedchex or Cross-chex – and it’s fedchex.com and cross-chex.com. These are check-guaranteeing services, and the interesting thing about them is that they’ll allow you to write up to four checks up front for the investment, and allow the contractor to deposit those checks like every 25, 30 days. So in essence the customer gets up to about 120 days of interest-free financing for that period. Now granted some people who don’t have very good credit probably don’t have the money to be able to do that, but in some cases maybe they do, they just don’t have the money today. But I’ve had some success with those types of organizations that guarantee the checks and, if the customer’s check bounces, these organizations ensure you get paid. The cool thing about this is there’s no credit criteria. The only thing these check-guaranteeing companies have as their criteria is that you don’t owe the check-guaranteeing company money. And very few people are on these registries, so it may be something that works out for you.

And lastly, you may look into other sources of revenue that the customer may have. 401K, or if they can get a payday advance loan through work or through some of these payday advance companies that are out there they might be able to do that. Or if they have a relative or friend or neighbor or coworker, someone who can cosign a loan, that can be helpful.

But I think the key to all of this – I want to end with this after talking about all the other resources you have – when a customer gets turned down for credit, the key to that is to make sure that this is no big deal. This happens, you’ve had other customers this has happened to, your lenders change their criteria during the month, you’ll get notified via the mail as to what the reason was and maybe you can then go to work on your credit for that. But in the meantime how can we support you and how can we help you find an avenue for the money and the resources other ways – you know, do you have a neighbor?

Help them find that person, and let them know that this is just not unusual. The idea is you need to help them save face, because if they don’t have the money now, the need isn’t going to go away. And hopefully someone else isn’t going to work nearly as hard as you’re working to get them approved. So you want to make sure that if and when they do have the money or the credit, that they come back to you. So helping them save face is the most important thing and just letting them know that this is no big deal. We have a couple other lenders we can try to get you approved but, if not, if and when your situation changes, give us a call back and we can get the process started all over for you again and run the credit once you think you’ve cleared up any issues on your credit report.

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