So, you found a customer financing solution that works for your business…
You implemented the program and spread the word with your customers. Your customers have financed a few loans, but utilization isn’t what you hoped it would be, not even close.
You might be surprised to learn the obstacle isn’t the user experience, customer awareness, or even customer confidence. The answer might simply be that your financing products are ‘missing the market.’ In other words, they aren’t personalized to the needs and preferences of your customers.
According to a 2021 report from McKinsey, 71% of consumers expect personalization, and 76% become frustrated when they don’t receive it. Personalized interactions and offerings demonstrate a commitment to understanding your customers while simultaneously maximizing the utility of the products and services you sell. In the case of customer financing, personalization is the key to utilization.
Research tells us that financing preferences among customer segments vary widely. According to a 2023 survey conducted by Experian, 54% of Gen Z and 52% of millennials feel more comfortable using alternative financing options rather than traditional forms of credit. By contrast, Baby Boomers gravitate towards more traditional financing products. And this is just one example. Financing preferences vary by generation, socioeconomic variables, and even purchase type.
In this blog we’ll discuss the power of customizing your borrowing options with diverse loan products that ‘meet the market’ by aligning with your products and your customers.
Unsecured loans
Personal or unsecured loans typically have a straightforward application process and fixed repayment terms, making them an attractive option for customers who value simplicity and predictability. They also offer a versatile financing option for customers who need funds for significant purchases but do not have home equity or prefer not to use it. These loans appeal to a broad demographic, making them a smart financing option to offer for a wide range of merchants across industries.
Why merchants should offer unsecured loans:
Here’s why merchants should consider adding unsecured loans to their financing offerings:
- Broaden customer appeal
Because of their straightforward terms and limited prerequisites, unsecured loans appeal to a broad demographic, including renters and younger customers. By offering personal loans, merchants can cater to a wider audience, growing their potential customer base.
- Increase purchase power
Unsecured loans are ideal for moderate to high-value purchases that might not qualify for a HELOC. By offering this financing option, merchants can help customers manage significant expenses, such as medical procedures, significant remodels, or major home goods purchases. The ability to increase purchasing power leads to increased sales.
- Simplify the financing process
Personal loans typically have a straightforward application process and fixed repayment terms, making them an attractive option for customers who value simplicity and predictability. By offering personal loans, merchants can provide a hassle-free financing solution that meets the needs of customers looking for a quick and easy way to fund major life purchases.
Perfect for:
- Medical & dental services: Clinics and healthcare providers can offer personal loans to help patients finance elective procedures or treatments not covered by insurance.
- Automotive sales: Car dealerships can offer personal loans as an alternative to traditional auto loans, particularly for customers with less-than-perfect credit or those purchasing used vehicles.
HELOC (Home Equity Line of Credit)
Home Equity Lines of Credit (HELOCs) represent a significant untapped opportunity for merchants, especially those dealing with high-ticket items and services where that a customer’s cash reserves are unlikely to cover. HELOCs allow customers to borrow against the equity in their homes, providing a flexible line of credit that can be used as needed. You can learn more about HELOCs here.
Why merchants should offer HELOCs:
Merchants that offer home improvement services or luxury appliances are well-positioned to benefit from offering HELOCs as a financing option. Here’s why:
- Increase transaction value
HELOCs allow customers to access larger amounts of credit, often leading to higher average transaction values for merchants. This means HELOCs afford merchants the ability to upsell or bundle additional services and products that the customer might not have initially considered due to budget constraints. For example, a customer renovating their kitchen might opt for premium appliances or additional cabinetry if they have access to a HELOC or loop in a bathroom remodel as well.
- Attract a targeted demographic
HELOCs are particularly appealing to homeowners who have built up equity and are looking to invest further in their homes. This is a coveted demographic for most merchants as these customers are typically more financially stable and willing to invest in high-quality, long-term improvements. By offering HELOCs, merchants can attract this demographic, foster stronger customer relationships, and build long-term loyalty.
- Differentiate from competitors
As previously stated, in a competitive market, offering tailored financing options like HELOCs can set your business apart. Customers appreciate having access to financing solutions that align with their financial situation, and HELOCs are valued for their ability to provide capital access for larger projects that might be untenable with another financing option. By integrating HELOCs into your financing offerings, you can reinforce your business’s commitment to understanding and satisfying the needs of your valued customers.
Perfect for:
- Home improvement & renovation: Contractors, builders, and home renovation companies can offer HELOCs to customers undertaking significant home projects, like remodeling kitchens, bathrooms, adding new rooms, or adding pools or spas.
- Eco-friendly updates: Retailers of green products like solar panels and energy-efficient appliances can leverage HELOCs to help customers finance these big-ticket purchases, making them more accessible along with the added tax benefits.
Credit card programs
Credit card programs offer merchants a versatile financing option that appeals to a wide range of customers. This financing solution provides your customers with ongoing access to credit, making credit cards ideal for customers who value flexibility and convenience. These programs can also be designed with rewards and loyalty points, making them particularly beneficial for businesses that rely on repeat transactions or have a high volume of smaller sales.
Why merchants should offer credit card programs:
Here’s why merchants should consider integrating credit card programs into their financing offerings:
- Encourage repeat business
Credit card programs can incentivize repeat purchases. Customers who are enrolled in a credit card program are more likely to return to the same business to take advantage of the rewards they accrue with each purchase. For merchants, this means an increase in customer retention and long-term value.
- Boost sales through convenience
Offering this financing solution also gives your customers a convenient way to manage their purchases, particularly smaller or everyday items. By offering a credit card, merchants integrate a seamless, convenient payment option that encourages customers to transact with them more frequently. This can be particularly effective in retail environments.
- Enhance customer loyalty
Offering a credit card with exclusive rewards or discounts can significantly enhance customer loyalty. Customers who use a store-specific credit card often feel a stronger connection to that brand, especially if they receive benefits that aren’t available through other payment methods. In fact, 35% think they spend MORE because of their credit cards, while 37% say they would decrease their credit card spending without rewards.
Perfect for:
- Landscaping services: From lawn equipment sales to plant sales and traditional landscaping services, there is an opportunity to incentivize long-term customer relationships for a plethora of products and services. Landscaping often involves recurring services or repeat purchases and credit cards make it easy to set up recurring payments, which help build this repeat buyer relationship.
- Retailers: Retailers across industries, from appliances to hot tubs to ATVs, can benefit from offering credit cards as they encourage and even incentivize customers to return for continued product needs. This might include servicing, upgrades, add-ons, or net new purchases.
Customization has never been simpler with LoanStar
When it comes to offering financing options, don’t settle for a “one size fits all” approach. Choosing the right financial options for your business and consumers will boost growth and customer satisfaction. By offering a range of loan products tailored to the specific needs of your customers, you can enhance the shopping experience, increase sales, and foster loyalty.
And choosing the right financial platform will enable you to seamlessly navigate financing options, offering multiple ways for your customers to secure financing based on the unique products and sales processes of your business. A flexible financing platform also grows and changes with your needs, allowing you the ability to embrace new financing options in the future.
At LoanStar, our MerchantLinQ platform is designed with these goals in mind. Offering a variety of financing products—unsecured loans, HELOCs, and credit card programs—and supporting a diverse range of merchants, our platform is here to meet the needs of your customer base. Not sure which financing route will work best for your offerings? Schedule a strategy call to discuss with a LoanStar representative.
Already a MerchantLinQ user?
Start exploring the various loan products available through your MerchantLinQ platform and consider how each can be utilized to better serve your customers. Learn how to extend your financing offerings in MerchantLinQ today.
