Rising prices and changing consumer habits make offering financing increasingly important to HVAC contractors. The actual process for getting HVAC customers financed, however, lags behind that for other major purchases. That’s why EGIA partnered with Microf to introduce Optimus.

EGIA is a nonprofit trade association for home improvement contractors. Microf provides financing, including a lease-to-own product, to the HVAC industry. Optimus uses a soft pull to assess a consumer’s credit. This means taking data derived from the last four digits of a consumer’s Social Security number to estimate a credit score. Too many direct credit inquiries can harm a consumer’s credit score.

The soft pull is used to determine where a consumer most likely receives approval. Optimus includes a range of finance companies in addition to Microf. These include GreenSky, EnerBank, Wells Fargo, Mosaic, and Foundation. FTL Finance provides a second-look option. With Microf’s lease-to-own product, this means most consumers can find financing, said Matthew Bratsis, EGIA’s vice president of contractor services.

Three-quarters of home owners are prime consumers, meaning they have a credit score between 750 and 850. These are the consumers with which most finance companies want to do business. But that leaves a lot of consumers unable to easily secure financing. For HVAC contractors, many of these people are their customers.

“There are as many different sales processes in the industry as there are shapes and sizes of dealers,” said Bruce Matulich, CEO and executive director of EGIA.

Houston, We Have A Credit Problem

Many consumers lack the cash on hand to make a major purchase such as a new HVAC system. Studies have shown that a majority of Americans have less than $5,000 in savings. Meanwhile, the price of HVAC equipment keeps rising.

“Financing becomes more important for homeowners that need to replace their systems,” said Jesse Barrack, Microf’s chief marketing officer.

That’s why more HVAC contractors are now offering financing on every sale. Juan Luna takes this approach. The owner of Trilogy Services and Air Conditioning in Houston sends in a credit application for almost every job. Unfortunately, that almost cost Luna his relationship with EnerBank, his main finance source.

Houston residents have some of the worst credit scores in the United States. Almost 40% of the area’s resident are subprime consumers, according to the Urban Institute. This means they have a credit score below 650. It’s also very hot and humid in Houston, so there is a lot of demand for air conditioning.

EnerBank officials informed Luna they would have to drop him from their program because his customers’ rejection rate was too high. That was the bad news. They also told him about Optimus and helped him enroll in the pilot program.

Luna said Optimus has been a huge help in closing more sales. Consumers get approved in about the time it takes to enter their information. Trilogy representatives can complete the process right at the homeowner’s kitchen table using any device.

Managing Risk Through Leasing

Financing consumers with damaged credit takes more work and carries more risk. That’s why most HVAC finance companies focus on prime consumers, especially since that’s a large part of the market. Microf understands how to manage this risk, in part by maintaining an affordable monthly payment, Barrak said. The company has a reasonable default rate, he said.

Leasing the HVAC system provides some extra protection against the risk. Microf remains the legal owner of the equipment until the consumer pays in full at the end-of-term.

“It’s really designed for consumers who have damaged credit or who have had credit challenges in the past,” Barrak said. “We’re able to provide them with an option when traditional finance companies and even second-look finance companies don’t feel they can work with that homeowner because they are high risk.”

Bratsis said EGIA is working with Advantage Alliance to add a leasing option for prime consumers that will feature a subscription model to the Optimus platform. The best part of the platform is consumers won’t deal with rejection from one before getting accepted by the other. That improves the relationship between the HVAC contractors and consumers.

EGIA members get their customers approved about 70% of the time, Bratsis said. When they don’t, they tend to move toward another payment option rather than resubmit the consumer, he said.

“It’s just an awkward conversation,” Bratsis said.

Optimus also increases HVAC contractors’ access to prime consumers. Many small contractors lack access to the major finance sources because they lack either the experience or the annual sales revenue to qualify. EGIA underwrites these contractors to take away the risk from the finance companies.

Jay Kimbro, co-founder of Microf, said his company is already on the road promoting the Optimus platform at trade shows. He said a big push will be made at EGIA’s Epic event October 28-29 in Las Vegas.

“This partnership will allow EGIA, through the Optimus platform, to improve their current lender offerings and enhance the overall customer experience when financing and/or leasing a heating/cooling system,” Kimbro said.