The Transformation of Home Improvement Industry Through Embedded Financing

In the face of stagnant savings and escalating debt rates in the U.S., a pivotal juncture has been reached. The nation’s savings growth has stalled, while its debt is surging at an alarming pace, writes Brian Lanehart in the Fintech Nexus News.

A recent Bankrate survey disclosed that 48% of American adults possess sufficient emergency savings to cover three months of expenses, a decline from 49% in 2022. Moreover, nearly 22% lack any emergency savings at all. This unsettling revelation coincides with the Congressional Budget Office‘s projection that public debt will soar to 118% of GDP by 2023, marking a historical peak. As reliance on credit cards swells and savings diminish, dealing with unexpected financial demands becomes an ever-graver challenge, particularly in the face of persistent inflation.

One such unforeseen expense poised to spark considerable concern in the coming years is home improvement, specifically, home repairs. The pressing nature of issues like deteriorating roofs or burst pipes cannot be ignored, and insurance might not always provide coverage. However, for a significant portion of U.S. adults, mustering $1,000 within their budget becomes an insurmountable hurdle.

Enter embedded financing, a solution that has begun to bridge this savings gap, revolutionizing payment dynamics between contractors and homeowners. Here’s an insight into the workings of these mechanisms within the home improvement sector and their substantial advantages for homeowners.

Brian Lanehart, Co-founder of Momnt, describes embedded lending platforms as an integration into contractors’ standard point-of-sale systems, acting as an extension of the contractor themselves. This incorporation empowers contractors to promptly present financing options to potential clients right after inspections and estimates are concluded, offering an alternative to the increasingly stringent traditional financing avenues. Unlike conventional loans, these platforms encompass multiple lenders operating within the contractor’s checkout process. These lenders consider a variety of creditworthiness factors, moving beyond the confines of a universal credit score.

Furthermore, these platforms grant contractors a significant advantage upon loan approval. Traditional loans often entail the lender disbursing funds directly to either the contractor or the building supplies manufacturer. Alternatively, the lender might withhold funds until the client confirms satisfactory completion of the work. The former approach thrusts the recipient into a middleman role, while the latter forces the contractor to cover building material costs until payment is secured. Contemporary embedded lending platforms adopt a more efficient strategy, releasing funds to the relevant parties as required. This ensures contractors have procurement resources before initiating work, while assuring clients of the project’s completion.

When homeowners encounter unexpected financial predicaments, desperation can lead them to make decisions that exacerbate their financial woes. For instance, opting for lenders imposing exorbitant interest rates, resulting in years of interest payments before tackling the principal amount. Embedded lending platforms emerge as a countermeasure to reduce reliance on these overly burdensome offers. They endeavor to establish finance agreements that do not compound the financial burden of clients who are already grappling with emergency repairs.

Embedded lending platforms also provide clients with greater flexibility regarding loan acceptance timelines. Suppose a homeowner suspects storm damage to their roof, but their insurance provider disputes the cause, attributing it to ordinary wear and tear. These platforms allow clients to navigate the inspection process and receive estimates valid for several months. This affords them the space to revisit the contractor once insurance disputes are resolved.

As the U.S. navigates post-pandemic economic challenges, it has become evident that consumers necessitate alternatives for managing unforeseen expenses beyond the confines of major banks and rigid approval algorithms. Simultaneously, contractors require diversified options for clients during the checkout process, enabling them to convert potential «no» responses into affirmative ones without burdening their tech infrastructure.

Embedded lending platforms emerge as a promise of more viable solutions for both contractors and clients. They facilitate consumer access to multiple lenders offering better rates aligned with their financial status, while endowing contractors with seamless checkout options integrated into their existing technology stack. In the prevailing economic climate, these platforms represent a fitting solution and will continue to be a pivotal offering for contractors as consumers seek a broader array of financing choices in the future.