Magnum, I dont know what trade your in but in a small business cash flow is the name of the game. Its costing you money to keep money tied up (unless you have so much cash that you are financing these customers out of pocket on a 50% fee simple with The Rock as your collector). And the first time a customer balks on paying a $30,000 materials bill you will wish you had gotten the entire job ammount up front- even the cost of the little basket of wine and cheeses that make a new house warming so warm. And you may think "well I'll just "lein" on it" but my philosophy is that if you ever have to start those kinds of proceedings then you have already lost, no matter how right you are, you still lose.
Now having said all that, if your a large enough company and doing big business like Florcraft then floating a customer's bill of $2000-$3000(with intrest of course) may work. Or you can affiliate yourself with and outsource your financing to a financial company (credit company, local bank, urban development lender). And by doing this you or yours are not in jeopardy and dont lose a meal when the customer donesn't pay. You can also work a deal with the lender that your clients get a little better APR, then on the other end, charge your customer a small "handling" fee ($150,300, 500) just for setting them up with the lender- no this is not wrong, you made it available to them didnt you? You took the time to set up the contacts- you put time into helping them finance their dreams so your time must be compensated. Contact your banker and ask him to set it up. He will be all to happy to set you up a money street that leads right to his door. All you have to say is "Yes I finance" and whip out your chosen lender's credit app., just like the appliance centers do it.
Just my 2 cents, but getting burned once was enough for me while trying to be the nice guy and thinking that I needed to help the customer with financing or I wouldnt get the job.....You dont want or need that job.
There's a bank here where you get a commission for setting up your client's financing through them. You and the client fill out all their application and then you submit it. It's not the same as financing yourself, but you are still "providing" a financing option to the client without becoming a bank.
Customer financing is something I am going to start once my company becomes stable enough. Customer pays down payment just like normal and signs a "promisary note" with their house as collaterol and then makes monthly payments once the work is completed.
If they default I own their house. If they make all the payments I still make what I would have normally charged plus interest. It's not quite that simple really but I'm gonna give it a shot in a few years.
Grumpy, thats great idea and has potential to make more money than just plain old sell of the house. But whats your method- tacking on intrest to what the bank is charging you while you use their money or are you talking about doing this with properties you own outright?
If you are doing this on a project that you did sub work on then it seems that the mortgage company would have issues with defaulting on the house. Mabey a finance genius can speak up. Either way it seems a possible way to make more dollar while offering your client more options if, and only if, you have totally CYA.
I was appointed as referee in a number of forclosures in my previous life, and also reviewed same for a NY Supreme Court Judge. Bear in mind that a mortgage lien, like any other, is paid in order of priority. There are some liens that have priority by statute (e.g. taxes), and others based upon the order in which papers are filed in the clerk's office. Simply securing the credit you advance will not guarantee payment if the debtor goes into default unless you are first in line. Additonally, if the debtor declares bankruptcy, you are generally enjoined from enforcing the lien of the mortgage until cleared to do so by the bankruptcy court. If you're not first in line, you can really get screwed. I agree with Tim. Make an arrangement with a lender and facilitate the financing. Foreclosures and bankruptcies are a real pain in the a$$.
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