| 1888 Articles Home | Finance Articles | Loans Articles | Online Business Articles | Loans RSS |  |
||
Finance more custoemrs through Installment Contract Funding programs |
||||
|
You can increase revenue and sales by offering customers additional ways to apply for financing if turned down by conventional means. Installment contract funding is a great way to accomplish this. |
||||||||||||
| Author: East Bridge Funding |
|
|||||||||||
Finding solutions to this problem can be difficult. Sub prime consumer loan programs aren't easy to find. Most banks typically steer clear of sub prime unsecured lending. Many businesses often resort to financing these customers in house which is time consuming and expensive to manage and doesn't deliver immediate cash like typical consumer finance programs or credit cards do. So what other options do businesses have?
Installment Contract Funding is an answer that many industries have successfully turned to for years. In these programs, businesses sell their newly generated receivables to finance companies for immediate cash on a monthly, bi weekly, weekly, or even daily basis depending on volume. The program works much like any A credit financing program would. The customer fills out a credit application. If they are denied by the businesses first look option, they are then sent to the second look option for approval. The second look program is designed to accept a good number of those consumers who the A credit lender deemed "unworthy". The second look option will underwrite the loan and if it passes their specific underwriting criteria, the lender will purchase the loan from the business and a discount, giving the business immediate cash for the receivable and then collecting the debt from the consumer just like the A credit lender does.
Because the second look option accepts a lesser credit class of consumers, it can not fund the business 100% of the principle balance like the A Lender can. The default rate on the portfolio will be much higher for the second look option as well as the overhead. It is much more expensive to collect from sub prime debtors as it is from good credit debtors and sub prime lender generally has a much higher cost of funds in order to buy loans.. To offset the higher default rate and overhead, lenders will charge the business a discount fee. It works much like the fee credit card companies charge and it is usually determined by the expected default rate on the portfolio. The more approvals you want (meaning the deeper the finance company will approve credit) the more it will cost because the default rates will raise as you move lower into FICO scores. The discount fee also enables the lender to charge a more competitive interest rate so that your customers will be happy. Discounts can vary greatly from as low as 5% to as high as 50% or more.
A typical loan purchase might look like this: Product/Service sells for $2,000. Business receives a down payment of $500. Finances $1500 to consumer. Second Look option approves loan for purchase at a 15% discount ($1275 is funded). Lender funds business $1275, Customer put $500 down, giving the business $1775 in cash for the $2000 product/ service.
From this example you can see that the business was able to make the sale and generated $1775 in cash from the transaction as opposed to the customer walking out the door and the business receiving $0. In addition, the business has not devalued their product or service as the customer is still paying full retail.
Because discounts make these programs work, they are best used in industries that have high profit margins so that they can comfortably absorb the discount and still make a sizable profit. Generally you need a markup of 40% or more from what the product or service actually costs you to deliver.
There are many more industries where this type of financing is beneficial. In addition there are many finance companies that purchase loans like this. However, they are not always easy to find.. These companies aren't in the mainstream of the finance world and most of them operate in a certain niche or industry. One of the best things you can do is locate a funding broker who has relationships with many of these types of companies. They can save you valuable time and money in your search for the perfect funding source for your business. A good broker will know which finance company would be for the products or services you sell.
About Author
East Bridge Funding offers unique consumer finance programs to businesses. A leader in receivables management, installment contract funding, accounts receivable financing. and consumer finance programs.
Article Source:
http://www.1888articles.com
Other Related Articles Auction-Attempt to purchase goods and services by Rita Bansal Finance more custoemrs through Installment Contract Funding programs by East Bridge Funding Please Leave A Brief Message After The Tone by Kroy Ip Search engine marketing expert by Amit Chanana |
