Project In House Financing

Discussion in 'Landscape Architecture and Design' started by mcw615, Oct 12, 2011.

  1. mcw615

    mcw615 LawnSite Senior Member
    Messages: 473

    We focus a lot on design/build and as well as maintenance contracting.

    I love compounding interest income, let your money work for you--not always work for your money. I am wanting to adventure into more investing opportunities, and why not do so within your own means.

    One thing I am considering is offering in house financing for some of the small maybe medium sized projects we do and see how it goes. This will do two things, possibly lead to more sales (increased revenue) and lead to compounding interest income, thus more revenue. The ultimate thing is, no, not completely straight liquid assets. We generally have about a 22% profit margin. I am considering only offering financing for up to $5,000, for now and see how it goes. For a $5,000 project, my liquid asset of what I am actually investing is $3,900 before profit, but I am financing $5,000.

    I am just looking for general advice on this idea, if anyone has any experience in this or general input. Very preliminary at this point. MANY thanks. For a $5,000.00 your are looking right at $500.00 in interest, that's an additional 10% in profit. What CD is out there that you can get 10% PLUS lead to an extra sale or two?

    Ex. Loan Amount ($5,000.00) Interest (18%) Term (12) months

    PMT Pri. PD. Int. PD. Total Int. YTD BL
    Nov. 2011 $458.40 $383.40 $75.00 $75.00 $4,616.60
    Dec. 2011 $458.40 $389.15 $69.25 $144.25 $4,227.45
    Jan. 2012 $458.40 $394.99 $63.41 $207.66 $3,832.46
    Feb. 2012 $458.40 $400.91 $57.49 $265.15 $3,431.55
    Mar. 2012 $458.40 $406.93 $51.47 $316.62 $3,024.62
    April 2012 $458.40 $413.03 $45.37 $361.99 $2,611.59
    May 2012 $458.40 $419.23 $39.17 $401.16 $2,192.36
    June 2012 $458.40 $425.51 $32.89 $434.05 $1,766.85
    July 2012 $458.40 $431.90 $26.50 $460.55 $1,334.95
    Aug. 2012 $458.40 $438.38 $20.02 $480.58 $896.58
    Sept. 2012 $458.40 $444.95 $13.45 $494.03 $451.63
    Oct. 2012 $458.40 $451.63 $6.77 $500.80 $0.00
    Last edited: Oct 12, 2011
  2. jlouki01

    jlouki01 LawnSite Senior Member
    Messages: 453

    We stopped offering credit. Unless you spend a ton on a great contract with a sh*&ball attorney, spend a bit on your background stuff credit reports etc. and have money to burn i'd stay away from it.

    500.00 over 12mo isn't a lot of money to be made. You will need such volume to make that worthwhile chances are pretty good nobody on here has that kind of cash flow.
  3. mcw615

    mcw615 LawnSite Senior Member
    Messages: 473

    Nobody has money in a sense to burn. I am however an entrepreneur, and investor. Now obviously a thorough credit check would be completed prior to providing the client a line of credit. Now I am not sure what your market is like, but most of our small projects are around $5,000. I am wanting to allocate about $30,000.00 from this year's profit towards investing. Taking $5,000 and putting it into a CD, you are only looking at a $75 profit...that or $500? It is all about compounding interest.

    Now the only thing over the last few hours that I was beginning to consider is 12 months is a bit stretch for a landscape project, it's much like a personal loan. You have nothing to repossess if the customer defaults. If they for some reason loose their job, they will likely be more able to pay the loan on a 90 day term, then a surprise 12 months down the road.

    An much safer option I am now considering is the 3 month, 90 day. You would be looking at $200.00 in interest......still all just an idea.
  4. shovelracer

    shovelracer LawnSite Silver Member
    Messages: 2,008

    assuming you follow all the state laws on lending it can be profitable, but what if every client takes advantage of this. You need a cash flow to operate. Is it worth tying up 30k to make 3k, to me it is not. You can spend a fraction of that on marketing and make more. My initial thoughts are lets say you can make $500 over the loan. How much do you spend on a thorough credit check? $100, then you have additional office work over the loan, $100, you get the point. Now my other thought is people fear lets say "People's Credit Card Company" because they have power, money, and an entire office full of attorneys ready to pursue bad debts. Contract or not I would think that it is far more likely that the landscaper's credit account will not get paid in a time of financial hardship, and you may or may not have the means to pursue it. Assuming you do, how much is that going to cost. One bad debt ruins almost 2 years of this service. Not worth it to me. Look into 3rd party financing if you want to attract more work. You get paid and if they default it's not your problem.

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