Consumer Finance as a Growth Tool

Like hammer on nail, Larry Judson is very direct when he speaks about his business. He has spent a lifetime in the remodeling industry and has formed opinions that are as solid as a slab foundation. You get the sense that his knowledge is backed up by experience and results.

When asked about the importance of consumer financing in his remodeling business, his answer was crystal clear.

“Consumer financing is of paramount importance and its importance is indisputable,” said Judson, president and CEO of K-Designers, a company he founded almost 30 years ago with his brother, Lee Judson. “If you want to excel in this business you have to do consumer financing well.”

Judson has used a strong financing program to build one of the nation’s top remodeling companies. K-Designers has offices in 11 Western and Mid-w estern cities and operates in 18 states. The company recently topped $65 million in annual installed revenue.

“Larry is a very incisive person,” said Bruce Christensen, vice president and general manager of GE Money — Sales Finance, K-Designers’ financing partner for many years. “He understands what consumers want and how they think, and he has translated that understanding into nearly 30 years of business growth and success.”

Judson is no Johnny-come-lately to the financing game. He was a proponent of consumer financing even before he started his own company.

“I sold remodeling projects for a company in Pueblo, Colo., before we started our business,” he reminisced. “The company had a consumer financing program backed by a couple of local banks. I learned then that financing was often the difference in whether or not you made the sale.”

Judson instinctively knew that two of the biggest impediments to selling are indecision and delay. With an efficient financing program, he could minimize both these obstacles and move consumers closer to signing the contract.

“Nobody wants to sit in a bank and ask for money,” he explained. “I knew that if I could offer financing on the spot, and at a payment they could afford, we would get the sale immediately. Financing allows the salesman to control his own destiny, rather than putting your destiny in the hands of the consumer and a banker.”

K-Designers began operations in Casper, Wyo., in 1978 with just four employees, but the company had a consumer financing program from day one. FinanceAmerica had a branch in Wyoming and took on the fledgling remodeling business as a partner. The company experienced immediate and spectacular success, signing four times as many contracts as their competitors who didn’t offer financing.

“We simply could get more business because we offered financing,” said Judson. “But it didn’t take the competitors long to figure out our secret.”

Surviving a Crisis

Judson’s company was a buzz saw during its first two years, expanding to Billings, Mont. in 1980 and later to Rapid City, S. D. But in 1981 the building business slumped badly as the prime lending rate soared from 7 percent to 21 percent in just six months. The interest rate situation put remodeling plans on hold as homeowners tightened their belts financially. For a company built on consumer lending, this could have meant catastrophe.

Like most good builders, Judson is a problem solver. He also has more than his share of determination. While other contractors were preparing for a dismal year, Judson was talking with his bankers about how to revitalize his consumer financing program.

By 1981 he was working with regional lender First Federal Savings and Loan of Rapid City. He persistently badgered the bankers to come up with an idea that would make lending affordable for his customers.

At Judson’s insistence, the bank devised a new plan that would allow homeowners to borrow money for remodeling at 16.9 percent, a full four points lower than prime and far lower than any other contractor or banks could afford. They did it by allowing K-Designers to “buy down” the loan.

“As far as I know, we were one of the first in the industry to do this,” said Judson. “We were adding an additional two percent to the cost of the project and paying two percent ourselves, just to encourage people to sign contracts. As soon as we started marketing this concept, the phone began ringing off the hook. We were doing so much business we could barely keep up with the work. I think people were afraid to pass up the offer for fear they would not see such a good deal again.”

This may have been among the first uses of incentive financing in the remodeling business. Smart contractors are still using “buy downs” as a way to spark sales during slow business periods.

The unexpected success that resulted from the interest rate hike led Judson to carefully examine all aspects of his consumer financing program. Judson was already convinced that financing was fundamental to sales success, and by thorough analysis, he might find other ways to enhance the program and strengthen their competitive position.

As a student of the sales process, he knew that it was vital to close deals during the initial presentation, rather than allow the customer to “think it over” or shop around for their own financing. This would help eliminate the sales obstacles of indecision and delay.

Getting the customer to sign the contract during the presentation required they have financing in place. This meant on-the-spot credit applications and fast credit decisions by the lender.

“The relationship with the lender is the key,” Judson explained. “We don’t have time to shop loans around. It’s to our advantage to work with one or two lenders who can respond in minutes, rather than hours or days. It also helps to know what type of customer the lender will finance. We are very familiar with the profile that our lenders are looking for, so we have a very high approval rate.”

As his company grew and expanded into other states, it became necessary to find a bank that was national in scope. In 1985 Judson began a relationship with GE Money. They were licensed in every state where K-Designers was operating and GE had the resources to provide the kind of service Judson required from a financing partner. Judson described the initial relationship as “a marriage of convenience,” but there were other benefits of the partnership that soon became apparent.

“Their philosophy lined up perfectly with ours,” said Judson, who is now chairman of the GE Home Improvement Advisory Board, a group of contractors who meet periodically to suggest ways to improve consumer financing programs. “They (GE) were very service oriented and had a long history in home remodeling. Other banks had come and gone in this business, but they seemed to be committed to it. That was important because we were interested in long-term growth.”

From the beginning, Judson has tried to work with local or regional banks with which his customers were familiar. The familiarity with the lending institution created a comfort level with the consumer, Judson felt, and made it easier to close the deal. Now, working with GE Money, he gets the same benefit.

“The credibility of the lender makes the consumer more confident, and it lends credibility to the contractor, as well. No one has a better business reputation that GE. It’s a nice selling point for us.”

More Financing Options

Twenty-nine years in business have only confirmed Judson’s opinions about financing and its importance in the remodeling industry. According to him, financing may be more important than ever.

“When we first began, about 50 percent of our customers financed their projects. Today, about 74 percent of our sales are financed. More so than ever, people are payment buyers. The big difference is that these days, we have more financing options to offer.”

Back in ’78, the typical financing arrangement was a secured loan, which usually is a second or third mortgage against the property. Now a customer can choose to finance the project with a nonsecured loan, which carries a slightly higher interest rate and is based solely on the applicant’s ability to pay. Consumers may also choose a consolidation loan, which consolidates other outstanding debts into a single payment, or a revolving loan, which is a credit card product used mostly for jobs under $10,000. Judson’s company offers the GE ProjectLine card.

During the presentation process, some customers may brush off the subject of credit with the intent of securing their own financing. That’s fine, said Judson, but they encourage the customer to complete a quick credit application anyway.

“It’s great to tell them they are already approved right there in the kitchen,” he said. “They can avoid shopping for credit and sign the contract immediately, if they choose. Of course, they still have the option of finding another lender later and we clearly inform them of this opportunity, but we have found that the majority of these customers end up financing with us.”

The ability to close the deal has helped K-Designers build a thriving remodeling business that continues to grow. Much of their success can be attributed to a smart selling strategy and a focus on consumer financing, something Larry Judson emphasized from the very beginning.