7 questions to ask when evaluating a financing partner

With so many potential financing options out there, it can be hard to settle on a partner that addresses both the needs of your business and your customers.

In talking to retail and home services businesses every day, we’ve noticed a few specific blind spots that come up in most of those calls. These blind spots - if not addressed in your early-on conversations - can have a detrimental effect on your business down the line, forcing you to pivot to a new financing solution.

To help you feel more confident when choosing a financing partner, be sure to keep this list of seven questions handy as you evaluate your options.

1. How large of a customer base can you serve?

You may know quite a bit about your customers, but you may not know what their financial backgrounds look like. There are data enrichment services that you can use to understand the credit profiles of your customers, which is important data to have when evaluating financing providers.

It’s just as important to understand the credit profiles of people who are interested in your products or services, but may not be shopping with you today. These are known as “hidden buyers.” One of the reasons these browsers never became buyers, may be because you don’t offer a financing solution that’s right for them.

When evaluating financing providers, ask what consumer credit profiles their solutions cover and consider how that aligns to your current and prospective customer base.

2. What are your typical approval rates?

Some vendors may claim they serve a wide audience, but the proof is in the numbers. This is such an important data point, because it determines how many potential shoppers will actually end up with the purchasing power they need to complete the sale.

You want to look for a vendor with the sophisticated underwriting technology and analytics required to give every potential customer the highest chance of getting approved.

3. What is your customer application experience like?

Thanks to ecommerce giants like Amazon, customers today expect a low effort, seamless, and friction free checkout experience - and financing is a critical part of that flow.

You want to understand a few things:

1. Can customers apply from home? This capability is important, because the earlier in the purchase journey they are approved for financing, the more likely they are to visit your business and potentially make a larger purchase.

2. Can they complete the application on a mobile device? Nothing overwhelms a customer like a paper application or having to wait in line for a shared terminal. Customers are also nervous about sharing personal information. It's more convenient and feels more secure to apply on their own device.

3. How long is the application? A long checkout process means more abandoned carts. You'll want to understand how many steps and clicks are involved in order for your customer to apply.

4. Do you offer in-store and online options?

Depending on your business type, you may be in the market for both online and brick + mortar financing services.

Most traditional financing companies are specialized for an in-store experience, while most of the buy now, pay later players cater to eCommerce.

Even better - check to see if your solution is natively integrated with the platform your website is built/hosted on (Magento, Squarespace, Shopify, etc.)

5. What marketing services are available?

Time and time again we see this situation play out with other financing providers:

1. You sign-on to offer their services

2. They give a very brief onboarding

3. You never hear from their team again and are left trying to figure out how to best use the app/train your team.

4. You end up never using financing because you just don’t know how to offer it or promote it.

Sales and marketing support is an extremely important piece of the puzzle that you can overlook. You should get in-store signage (POP displays) and a playbook on how to promote financing on your social media platforms/Google My Business Page. It's also a good idea to ask about co-marketing services and how your business could be promoted to a financing providers' customer base.

6. How hands-on is your customer support team?

Don’t overlook the fact that your customers will view their experience with your financing partner in the same light as your business.

If a customer gets upset with their financing, it will get reflected back on your business (and there's nothing worse than their frustration showing up in your Google reviews).

Always vet your potential financing partner before signing up - be sure to check Google reviews to get an idea of past customer experiences.

7. What are your merchant fees?

Most financing solutions come with a small processing fee charged back to you in the form of a percentage of the sale called a merchant discount rate (MDR) – think of it as a processing fee.

These aren’t all bad, though - they can help fund new promotional offers or give you access to higher value customer tiers. They are also only incurred if you use the service.

On the other hand, there are a number of financing providers that will charge a monthly fee to offer their service, which you will incur even if you don't use it.

To get an idea for these figures, ask companies for a term sheet to get a better idea of the costs associated with their financing options.