THE NUTS AND BOLTS OF IN HOUSE FINANCING. Pat Nanda C.E.O. CBD Credit

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1 THE NUTS AND BOLTS OF IN HOUSE FINANCING Pat Nanda C.E.O. CBD Credit

2 CREDIT CRISIS A bank is an institution that will only lend money to those who can prove they don t need any!

3 REASONS FOR IN HOUSE FINANCING Financing companies have reduced Financing, so good credit customers are being rejected. Many potential customers go back disappointed, don t buy anything, and then go to the competition. Consumers do want to buy! Sending them to rent-to-own is not the best solution for the applicant or you! Inventory needs to move so new inventory can be put on the floor. Avoiding the need to offer SALES Reductions and Discounts

4 BENEFITS OF IN HOUSE FINANCING Increase sales AND make money on In- House Financing Make more money on the interest Make money on Credit Insurance Sales Up-sell and offer additional products to people with better credit Manage your clients better by using the CRM like features of Loan Origination and Accounts Receivable Programs

5 BENEFITS OF IN HOUSE FINANCING You will sell more and rarely having to say No Keep in mind that you do not need to replace or do away with your primary lender You are ONLY trying to provide in-house financing to the TURN-DOWNS from your primary lender You do not need to finance ALL the turndowns, only those that fill your risk appetite Creates Customer Loyalty

6 HOW ITS DONE NOW Rent A Center (Tide Water, TRS) Lost Customer For ever Customer Pays 300% More Retailer Gets 15% over cost

7 HOW IT SHOULD BE DONE NOW Decision Station Calculation, variables, Score & Reports Score Over 500 Tier 1 Score Tier 2 Score Tier 3 Score Under 380 Risky

8 ESSENTIALS OF IN HOUSE FINANCING FUNDS Either a bank credit line, an SBA Loan, or your own money Account setup with: Credit Bureaus Insurance companies Loan Origination Software with Credit Scoring Models Accounts Receivable Software to create Contracts and manage loans A credit team to make credit decisions and manage receivables/collections Some states may require registration

9 GETTING STARTED Money :- Use your own, or apply for a Bank s credit line, or an SBA Loan through your Bank Apply For :- License (in some states) Credit Bureau Account Number Contact :- Loan Origination Software Vendor Credit Scoring Vendor Accounts Receivable Software Vendor Insurance companies that you can hook-up with

10 CREDIT SCORING MODELS MAKE THE RIGHT DECISION REDUCE THE RISK

11 IN HOUSE FINANCING RISKS NOT Knowing Your Good Customers From The Bad NOT Knowing How Much to Finance NOT Know How Much Down Payment to Ask For NOT Know the Signals of a Loan going Bad and taking the Timely Appropriate Actions NOT Doing Proper Collections NOT Having The Right Tools To Manage All Of The Above

12 REDUCING THE RISK.. Knowing Your Good Customers From The Bad Use Application Processing Systems Use Credit Scoring Knowing How Much to Finance Use Tiers That Are Based On Scored And Risk Good Customer Lend More, Bad Customer Lend Less Know How Much Down Payment to Ask For Ask For More Down Payment from Bad Applicants Ask For No/Less Down Payment from Good Applicants Know the Signals of a Loan going Bad Have a Plan for Contacting As Soon As Due Date Passes Use Different Plans Based On Past Days Due Doing Proper Collections Have a trained Collections Employee using a Good Accounts Receivable Solution Having The Right Tools To Manage All Of The Above Use the Latest Solutions for Loan Applications and Evaluating Credit Risks Use The Advanced Scoring Technology to Know The Risk

13 OK, WHAT S SCORING... Using Scorecards Is How Risk In Financing Is Mitigated Scorecards (Or Scoring Models) Are Reliable Ways To Predict The Behavior Of A Loan Applicant Based On Their Past Behavior With Credit Types of Scoring Models Custom Or Empirical Based On Your Data Generic Pre-Built Models Based On Industry Combination Generic Model Modified Using Your Data Factors To Consider In A Scoring Model. Application Information : Income Time At Residence Own or Rent Time at Current Employer Credit Bureau Information : Public Record Items Trade Line Items Utilization Of Credit Past Delinquencies

14 ADVANTAGES OF CREDIT SCORING Enhanced Effectiveness of Credit Decisions Automated Decision Making Consistency Of In-House Finance Decisions Monitoring & Tracking For Greater Management Control Marketing Data For Cross Selling Of Additional Products And Services Compliance With Federal & State Credit Regulations is Easily Demonstrated And Secure

15 RESULTS OF SCORING KEEP IN HOUSE TIER 1 SCORE = MAX LOAN AMT = $3,000 TERM = 24 MO INTEREST = 9% DOWN PAYMENT = 0% T IER 2 SCORE = MAX LOAN AMT = $2,000 TERM = 18 MO INTEREST = 12% DOWN PAYMENT = 20% T IER 3 SCORE = MAX LOAN AMT = $1,000 TERM = 12 MO INTEREST = 15% DOWN PAYMENT = 30%

16 INCREASE SALES & SELL OTHER SERVICES Example Amount Credit Applications per Week % Accepted by Primary Lender 50 50% Rejected Applications 50 30% Approved for In House Financing 15 New Applications per Year (15 x 52) 780 Average Merchandise Sale $1,000 Gross Sale Realised from In House Financing $780,000

17 ADDITIONAL INSURANCE INCOME Example Amount Average Merchandise Sale $1,000 Warranty Sale $100 Credit Insurance Sale $148 Retailers Commission $75 Insurance Sales Per Year ($75 x 780) $58,500

18 MANAGING RECEIVABLES Use a Good Receivables System Establish Contact Method Based On Delinquency And Follow The Plan Manage Marketing Campaigns Based On Receivables System

19 REVIEW OF PRODUCTS AND SERVICES Funding Sources Loan Application Processing Systems Scoring Models Contract Generation Accounts Receivables Systems Planning For Delinquent Accounts And Collections Collections Scoring Models

20 EXISTING CLIENT'S EXPERIENCE

21 ROYAL FURNITURE Our two scorecards (New Applications and Add-On Applications) have performed exceptionally well and we have been able to achieve significant savings from them. The scorecards have increased our lending profitability while simultaneously decreasing our risk profile. M i c h a e l Fa b e r

22 BROWNS FURNITURE We have been able to increase our sales and reduce our losses through bad loans by deploying the Loan Origination Software and scoring models from CBD. We have seen a considerable return of investment in the first year itself. D o n n i e H i n t o n, P r e s i d e n t

23 LACKS HOME CENTER Through their custom credit scoring system, CBD brought order to the decision making process for Lacks resulting in, higher approval rates, the ability to offer higher credit limits, reduced delinquencies and write-offs Melvin Lack, President

24 FOR FURTHER INFORMATION Read More Articles And Learn About these products at Princeton, NJ Or Call us we will help you