Financing has always played a very important role in the marketing efforts of furniture retailers. Drive past any furniture store and you will most likely see messages in the windows that read "financing available", "No interest financing", or "no payments until...". Furniture stores use financing programs to make their large ticket items more affordable to the general public. When the economy went south in 2008 many of the programs that the furniture dealers relied on disappeared or the credit restrictions where increased to the point that furniture dealers saw large decreases in approval rates leading to declines in sales at a time when they desperately needed them. Only those customers with near perfect credit were granted access to credit with these programs.
Fast forward to today. Not much has changed with the primary finance programs of the major providers. They are still not approving what they used to pre-2008. However, multiple programs have been introduced to the industry that focus on those individuals with poor credit (Scores below 630). Some of them can even approve individuals without a credit check. They work because the debtors in these programs are charge exorbitant amounts of interest and fees to offset the risk associated with financing such high risk individuals on an unsecured basis. This also enables the lender to keep the cost to the merchant or retailer relatively low (similar to what they pay for prime programs) so they have become popular in the industry.
Now the issue that furniture dealers face is how to get financing for the person who has "average credit" or scores from 630-720. Many of these customers are declined by primary providers, but these types of customers would never agree to the fees and interest attached to no credit check or leasing programs. In their minds they have good credit and expect the same kind of terms and promotions offered by primary programs. East Bridge has seen a large increase in dealers contacting us looking for that "middle ground" program. Luckily for them, there are lots of 2nd look options available. The problem that dealers run into is that the interest rates charged to the debtor in these programs are generally in the high teens or low 20's (which is a reasonable rate for unsecured debt to someone with less than perfect credit), so the lender must increase the fees to the dealer to make up the rest of the risk. This creates the unusual circumstance where a dealer will pay less in financing charges for someone with a poor credit score than a decent one. With current and changing lending laws in the debtors favor, there isn't any magic solution to this problem. Dealers have begun to understand that if a 2nd look program is inexpensive to the retailer, the approval rate will be poor because there is little room for risk that lender can take for approvals. The key to success for a dealer is to find a program that works within their margins but can still be effective in approving average credit. Dealers need programs that are designed to fit into their sales model based on what they sell, how they sell it, their customer demographic, and where they sell it (online, in-store, etc).
Contact East Bridge Funding to learn more about the types of furniture financing programs that might work for your business.