The mood of lenders in 2014

May 15, 2014

For many years, water treatment dealers have used payment plans and financing specials to help close deals on equipment and services. And, fortunately for dealers, smart …

For many years, water treatment dealers have used payment plans and financing specials to help close deals on equipment and services. And, fortunately for dealers, smart consumers appreciate and take advantage of these payment options to purchase water treatment equipment. For a period of time, lending seemed to slow down in the water treatment industry due to numerous outside factors, such as the recent downturn in the U.S. real estate market. Today, however, there are many positive signs, such as an improved economy, housing recovery and increased new home building and overall improved dealer performance, and industry lenders are ready to ride the wave with dealers moving forward.

As the country recovers, what’s the mood of industry lenders and consumers? We spoke with several experts that specialize in lending to the water treatment industry to answer some critical questions.      

As any experienced dealer knows, lending can have its ups and downs. As Chief Financial Officer Joseph Helstrom of Carmel Financial notes, the lending industry is sometimes described using the example of a swinging pendulum. “When times are good, the industry is far to one side, competing for business,” explains Helstrom. “When times are bad, it has swung to the other side and [the industry] is extremely cautious in lending. Sales finance, as a component of the lending industry, is no different.”

Water treatment dealers must understand and be aware of outside factors that affect lending in this industry. For instance, it moves and steadies with consumer stability and confidence in buying our industry’s products as well as the conditions of the housing market. According to the experts we interviewed for this article and supported by key market performance metrics, the lending pendulum is on an upward swing.

“Without a doubt, the conditions of the housing market and home values are directly proportional to consumer confidence and consumer demand for water treatment products. The stability and growth in today’s housing market and in the economy in general is helping propel our industry in the right direction,” says RW Schabes, president of ISPC. 

"In many cases," adds Schabes, "homeowners view water treatment equipment not as a necessity, but a luxury. As a result, when times get tough, the luxuries are the first to go. In terms of how a weak housing market affects our industry, many homeowners who experienced negative equity in their homes in recent years were seeking an escape from that situation, which reduced home improvement-type purchases, including water treatment equipment."

“As home values increase, and since many homes have been sold in short sales that resolve the negative equity, homeowners are increasingly willing to improve their homes by making purchases,” continues Schabes. “Similarly, as negative equity in homes subsides, lenders are more able to justify making loans for home improving products, further increasing dealers’ chances to sell water treatment products.”

What is lifting lending today?

The U.S., including the water treatment industry, experienced some challenging years recently. According to the experts we interviewed, several valuable lessons were learned during this period, strengthening your dealership’s ability today to offer competitive financing. Knowing how to use this resource, working with your financing company, and educating consumers are critical steps to lending’s benefits.

Since 2012, says Andrea McCullion, senior vice president – sales and marketing for Foundation Finance Company, conditions have improved. Lenders are eager to do business with dealers and continue to offer competitive programs. "Today, it seems that dealers have as much choice in the financing market as they have ever had,” asserts McCullion, adding this is a good trend. 

Industry lenders are frequently communicating with customers and offering flexibility in service. Today, many lending companies are working harder to understand dealers’ needs and their customers’ needs.

“Many companies look to see how they can get back to how it used to be, but we see that the successful companies have found new ways to do business. To be a successful company, you have to become partners with your dealers and work to help solve problems they may be experiencing and bring them added value,” notes Jim Anderson, vice president of sales and marketing for Aqua Finance Inc. “It’s truly a communication business. We need to be connected so we can offer what dealers can use to make them successful. For a financing program to be successful, we no longer can just roll out a thought.”

This communication is helping to ease dealer anxiety in financing. During the economic setback, lending was simply not as accessible to dealers and consumers as it is today. Some dealers, due to a lack of available options, had no choice but to abandon financing, says McCullion. “With the choices out there in the market, dealers should feel confident in offering financing to their customers,” she adds.

Dealers can offer some of the most popular plans customers have traditionally enjoyed. “Dealers can [still] use low payment plans, low APR plans, same-as-cash options and deferred payment options to attract new customers and close sales,” says McCullion. 

Educated consumers ready to be responsible buyers

As consumers continue to invest in home improvements, including water treatment equipment, a different type of buyer has emerged post recession. Today’s buyers are more educated and aware of their finances and their ability to pay back loans. In the end, this trend will help dealers attract more educated consumers that are mindful of risk.   

“Today, customers are much more aware of their credit, financing programs and the way they purchase,” says Anderson.

Furthermore, post-recession consumers are generally more cautious about acquiring new debt and are more careful about lending. Dealers need to convey how the past few years have affected lending and how the industry is moving forward into a brighter future.    

“Lenders have had to recognize [buyer caution] and also adapt to an increased regulatory and legal environment,” Schabes adds. “Finance companies are still able to provide consumer friendly terms like competitive interest rates and low payments on open-ended loans, but they have had to discontinue some popular promotional plans and they are also motivated to offer plans with shorter payoff periods.”  

While the needle is moving in the right direction and everyone is eager to move forward, dealers and consumers should look back and know what challenged lenders the most during the recession. Managing excessively high delinquencies and constriction of capital were top concerns. Knowing these factors will help buyers and dealers with effective lending in 2014.

“Regarding delinquencies, lenders are not willing to be as aggressive in accepting credit as they were prior to the recession and they have learned to pay more attention to home equities and consumers’ debt histories,” explains Schabes. “Today’s lenders manage their risk better by looking deeper into these areas and being more cautious when granting credit.”

The experts we interviewed for this article were extremely optimistic about lending’s future in the water treatment market. Increased competition for lending and the trends noted are the main reasons for the positive outlook. However, some dealers and consumers need to be aware of some new changes.

“Financing sources for the water treatment industry want your business in 2014. Competition among financing sources has helped sellers of water treatment devices in their sales efforts. However, a difference that consumers may note is that [certain] financing arrangements more often require security in the form a UCC-1,” informs Helstrom.

Another difference, in some cases, is more focus on consumer credit information. 

“There is more focus on employment information as well as names and contact information of references. This information is predominantly used for collection of delinquent accounts,” adds Helstrom. “Financing sources are also focused on underwriting the selling dealer and using any available information to determine if there may be issues with either integrity in the sales process or levels of service after the sale. This focus should benefit the professional selling dealers in the water treatment industry.”

As McCullion adds, no one — not dealers or lenders — want another slowdown in lending in our industry. Smart growth and long-term stability in lending will depend on solid, ethical practices. Further, lenders and dealers must become partners to offer solutions that cater to the consumer.

"With a positive future in sight, we must be on top of our game and always looking forward to find ways for dealers to make financing work for them. Our [industry's] goal is to help dealers be more successful every day. To do this, [reputable lenders] listen to dealers as they are getting valuable information from their customers. [These companies] continually evaluate programs and terms. A happy and informed customer creates a positive buying experience and favorable impression to the dealer," concludes Anderson.

Dealers that use financing to leverage sales are in a good position today to do so. Buyers are back and interested in purchasing water treatment equipment through smart financing. Lenders with renewed optimism are ready to partner with dealers to advance their businesses.  

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