Show Them The Money

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When customers decide to shop for a spa or pool, they come in thinking about relaxation and recreation, and it isn't until they see the line at the bottom of the sales ticket that the reality sets in that they're about to drop a good deal of money. They're all for spending money on their backyards, of course, but the size of the investment can scare some of them away.

At the same time, dealers have a lot of time and overhead invested in selling spas and pools to those customers. To let them go because they're a little put off by a price tag just doesn't make for good business.

It's at this point — before buyer's remorse has a chance to set in — that dealers need to let the customers know about the various ways they can finance the purchase. Whether you steer them toward a special charge card for a spa, a home improvement loan for a $50,000 pool, or a 90-days-same-as-cash deal for an above-ground pool, your familiarity with the options will help put your customers at ease. And when you break a large purchase price into manageable monthly payments for them, suddenly financial fears disappear and they go back to thinking happier thoughts.

"From the dealer standpoint, offering financing options is a real value-added service, and if he's bidding against a builder who doesn't offer it, that gives him an advantage," says Tim Droogsma, marketing manager for the home improvement division of St. Paul, Minn.-based GE Retail Sales Finance. "Say you have a builder who makes a deal. He can say to the customer, 'I don't know what you were thinking about financing, but I can help you out.' So the dealer then simply sends in the application and waits with the customer to hear if it's approved. And approval rates are above average because pool customers tend to ride a little higher on the credit spectrum."

Fortunately for both you and your customers, there are plenty of lenders out there that want to give people money and have experience lending to spa and pool buyers. Companies with that experience better understand the needs of spa and pool buyers and can often offer them greater flexibility, more convenience, lower payments and more money for larger projects than the typical bank. AQUA spoke with representatives from several lending institutions that deal extensively with the spa and pool industry, some of whom specialize in financing large backyard projects, others who focus on spa and aboveground financing, and others who are willing to take a chance on shoppers with less-than-perfect credit.

Options Abound

Almost all portable spa and aboveground pool retailers and a majority of in-ground builders say they offer some type of financing, but many are unaware of the numerous types of financing available, and may simply send customers to the bank down the block.

But while the local bank has long been the institution of choice for many retailers and their customers, it isn't always the best option for either party. That's because homeowners can often get more money or more favorable terms elsewhere, and, perhaps more importantly, dealers who don't send customers to a bank don't lose control of the sale.

Keeping control of the sale is one of the biggest reasons not to send customers to a bank for financing, Droogsma says, because when they leave your store, there's no guarantee they'll come back. They might get the money they need from the loan officer, but they also might stop by a competitor's, or even take the money and buy something else altogether.

One type of financing that will not only prevent customers from leaving your store, but will keep them coming back, is the industry-specific revolving credit card.

The Splash card from Wells Fargo Financial Retail Services, Des Moines, Iowa, is one example. The company debuted the card at the NSPI show in 2001, and senior vice president of business development Terry Fuller says it's been very well received among the several hundred dealers who are offering it.

"We've had a very positive response so far," he says. "They like it that they can have their company name embossed on the card, which personalizes it."

Another big benefit for the dealer, according to Fuller, is that customers who buy with it are likely to spend more than customers who plan to pay with cash.

"The average ticket on a revolving program is much higher," he says. "For example, say a customer wants to buy a $2,500 spa. They apply for credit, which takes about five to 10 minutes for approval, and if they get approved for a higher amount than that, it gives the dealer a chance to upsell them."

GE Retail Sales Finance also offers a revolving credit program. Like the Splash card, GE's AquaVantage is intended for purchases under $20,000, which in most cases means portable spas and above-ground pools. The cards are good at participating dealers nationwide.

"When somebody's putting a $6,000 spa in their backyard, it's really not worth taking out a second mortgage, so those are the customers who're using our cards," says Droogsma, adding that benefits for the dealer don't stop at a higher average ticket price.

"The beauty of this for the dealer is you can not only sell the pool or spa, but once the customer pays down the balance, you can sell them supplies to go along with it," he says. "It keeps them coming back because they have a credit card that's good at your store."

Home Improvement

In addition to the Splash Card, GE Retail Sales Finance offers larger loans for financing in-ground pools and other large home-improvement expenses, which Droogsma says represents the bulk of the company's business.

But what makes these loans, which are basically second mortgages, better than the ones customers can get at a regular bank?

"Most of our competition is from local banks," Droogsma explains. "But we're a little more aggressive than they are. A lot of banks will want a down payment, and we don't require that. A lot of banks will only lend to 100 percent of home value, and we'll go to 125 percent."

Here's how that works: Say a customer owns a $100,000 house and a $75,000 mortgage. Since the value of the house is $100,000, most banks will only be willing to loan the homeowners the $25,000 they have in equity.

"We increase the home value because the pool will increase the value of the home," Droogsma explains. "So if you have a $100,000 house, and you want to put in a consumer finance $30,000 pool, we'll allow an add-back on 70 percent of the pool price.

"So now we'll look at you as a homeowner with a $120,000 house (which would allow them $45,000 for the pool). That's a flexibility that most banks don't understand, but because we focus on home improvement, we understand the value of a pool better than a bank would."

Dave Segur is vice president of Mooresville, N.C.-based Lyon Financial Service, another company that offers no-equity and high loan-tovalue home improvement loans. He explains that the type of home improvement loans companies like Lyon and GE offer are fundamentally different from home equity loans, and that difference is a very important one to dealers.

"On a home equity loan, the lender doesn't care what the customer does with the money," he says. "They can go to Vegas if they want. A home improvement loan, on the other hand, has to be used for a specific purpose, in this case for a pool."

Segur says his company cuts checks that are made joint-payable to both the builder and the customer.

"That's mostly to protect the bank and the pool dealer," he says. "Sometimes people will try to get you to give them a loan for a pool, which has favorable rates, then they want to use the money for something else. That's not what a home improvement loan is about."

This type of lending protection is called staged financing, and in order for the checks to be used, both the homeowner and the builder need to sign them at different stages of construction, say at 40, 30, 20 and 10 percent of the project. Once the contractor does the excavation, for example, the homeowner will sign the 40 percent check; after the concrete is poured, he'll sign the 30 percent check, and so on. When the homeowner is satisfied with the project, he signs the final check.

"We've all heard horror stories of homeowners who plunk down a lot of money, then the contractor gets busy and doesn't show up for six weeks," he says. "It works the other way, too. The pool builder can do a lot of work and the homeowner can say he doesn't like it, etc. So it helps protect them both."

Pool loans not only have favorable rates (Segur and Droogsma declined to be specific), high loan-to-value ratings and staged financing, but both GE and Lyon are able to finance the projects for longer periods of time than banks are, which reduces monthly payments. A bank will typically not go beyond 15 years, while a home improvement loan specialist can go as long as 25 years in some cases.

"Going with us they have many choices," Segur says. "Compared to going with a bank where they don't have choices."

Risky Business

Most spa and pool shoppers have pretty good credit — they're homeowners who can afford a $6,000 spa or have enough equity in their homes to finance an in-ground pool. When these customers apply for loans, it's almost a forgone conclusion that they'll be approved. But every dealer has had customers who want to buy but are considered by most lenders to be bad risks. "There goes that sale," you say to yourself as the customer exits the store and you toss the credit application and sales contract into the trash.

In most cases, however, these sales can be salvaged by having the customer apply for a loan from a secondary lender, which is more aggressive in its lending.

"We finance customers with less than-perfect credit," says Joe Helstrom, CFO of Carmel Financial Corporation, a secondary lender based in Carmel, Ind. "We take a discount on our purchase of the contracts due to the lower credit quality of the consumers we're financing."

For example, if a dealer seels a spa for $5,000, which he bought wholesale for $2,500, and the buyer is turned down by a primary lender, the secondary lender will buy that contract for $4,000, meaning the dealer's profit will go down from $2,500 to $1,500. The secondary lender will then try to collect the $5,000 sales price from the customer. The discount is there to cover it customers' high default rate, which Helstrom estimates is five to six times higher than so-called "A" lenders.

"Some people are definitely going to default," he says. "In the business it's called non-recourse financing. In other words, if the borrower defaults, it our problem, not the dealer's.

"The advantage we offer is the dealer has already invested time in the sales process, overhead, advertising. So we give them the opportunity to turn what would otherwise be a lost sale into cash and profit."

Carmel purchases contracts up to $8,500, which limits its financing to spas and above-ground pools. The customer pays a relatively high interest rate of 19.9 percent, and the minimum monthly payment is 2 percent of the original purchase price.

Sending a customer to a secondary lender is obviously a last resort, as it will cost both you and the customer more than a primary lender would. But it's an option that helps you sell more spas and above-grounds, and gets people who might in the future have higher paying jobs and better credit their first experience in a spa or pool.

For the dealer, what matters most is knowing what's available. If you demonstrate to the customers that you have a handle on all the financing options and will help get them the loan that's best suited to them, they'll feel a lot more comfortable and may choose you over a competitor. And being able to break a big ticket price into smaller chunks for the customer takes away a lot of sales resistance.

"If a customer needs to finance the pool himself and you say, 'I'll need $40,000 from you,' he's going to blanche a little," says Droogsma. "But if you say you can finance it for him and the payment's going to be $300 a month, that's an easier sell."

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