Custom Design & Construction offers in-house financing solutions

When Bill Simone established his design/build firm Custom Design & Construction 28 years ago, he wanted to give his clients an easy, one-stop shopping experience. That meant not only providing design and build services, but financing options as well.

“The client shouldn’t have to go anywhere else besides us to complete a remodeling object,” says the president of the El Segundo, Calif.-based company, “whether it’s material selection, whether it has to do with a question about design, construction of a project or even the financing of a project.”

From its establishment, the company has offered an array of financing services for clients, using its own cash reserves. The company has never used the services of another bank, lender or broker.

“Our business philosophy has always been to reinvest profits back into the company rather than bleed it dry so that we can offer the financing to a client as sort of another tool in our belt,” Simone says. “That’s kind of how our thought process works with it.”

Clients who opt to finance through the company can select the financing option that works best for them. For example, they can finance their remodeling project 100% through the company, or put some of their own cash down, and Custom Design & Construction will finance the rest.

At Custom Design & Construction, Simone has three employees who are trained to explain their design and build services and financing options. “We start discussing financing with clients at our first contact with them,” Simone says. “We introduce it very early on in the process.”

Clients interested in financing their project through Custom Design & Construction must fill out a one page credit application and provide two of their most recent pay stubs. The company then performs a credit check on the client and appraises the property.

“It’s pretty rudimentary, but it really doesn’t matter because design/build clients pay their bills typically,” Simone says. “So we’ll look at income, debt-to-income ratio, years on the job, years in the field, any sweat equity and then we will make a decision that way.”

The company does not charge appraisal fees, credit check fees or title charges. The company does not charge pre-payment penalties or early payoff fees. The interest rate charged is the Annual Percentage Rate, or APR, and it’s a fixed rate for the term of the loan.

“Best-case scenario, the interest rates are going to be very competitive with what you get for a first mortgage on the low end, and worst case scenario, they’re going to be on the very low end of a credit-card rate,” Simone says. “At any option, we’re much less expensive to the client in the long run.”

Loans are structured to whatever works best for the client. For example, Custom Design & Construction offers short term 12- or 24-month loans that are interest-only, or the loan could be fully amortized over five years, up to 20 years.

Simone does not believe there are any drawbacks to offering this service.

“From the homeowner’s standpoint, it’s a pretty scary thing trying to find a company they feel they can trust,” Simone says. “If you find a company that’s willing to invest their own dollars into your property, as the homeowner, that says a tremendous amount about the company. And it’s pretty low risk from the homeowner/client standpoint. … I don’t think there are any drawbacks to that.”

The percentage of clients that fail to pay back their loan is almost negligible, Simone added. Currently, about 50 percent of his clients use the financing arm of his company. Simone expects that number to increase as the market improves. (At the height of the market, between 2006 and 2009, 70 percent of their projects involved some type of financing.)

Simone highly recommends that contractors maintain control or have an understanding on how projects are financed.

“Any contractor/remodeler that doesn’t offer financing or doesn’t have some “in” with somebody that offers financing is really not firing on all cylinders, especially in today’s market,” Simone says. “Even if you’re not carrying it yourself, you need to have some kind of a relationship with some entity that can provide financing [because] it’s very easy for a project to get derailed by getting someone from the outside involved with the client.”

He also recommends that contractors interested in offering financing should start small and raise some capital. To offer financing, Simone says that a remodeler should have three times their monthly sales volume in cash reserves.

Because of contractors’ interest in his business model, Simone plans on rolling out a financing package in late 2014 to contractors nationwide who want to offer financing but don’t have the capital to back it up.—Amalia Deligiannis