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Munro Motors had literally run out of options. Only a single bank was left providing consumer financing on used motorcycles – a lucrative division – and its loan conditions were so prohibitive that it was costing sales. “They were trying to fit car loan terms on to motorbikes and it just wasn’t working,” says owner Andy Munro. “They would only finance bikes up to 10 years old and could only offer 12- or 24-month loan periods. It was hampering sales. The thing I have learned about motorbike buyers is that they are after the lowest payment plan possible – they are not so worried about the length of the loan.”

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Gaps in the Lending Market

Unfortunately the situation facing Munro Motors as a used-motorcycle dealer is by no means unique. Offering affordability via consumer financing is a powerful sales tool – but one that many Canadian businesses are missing out on. Some find their industries lack consumer financing options, while others face onerous loan conditions restricting usefulness. This can apply to anything from education (there are no kindergarten to grade 12 tutoring financing programs offered by banks) to the trailer, motorcycle and boat industries (where bank financing options have limitations).

The Difference Financing Makes

Yet access to consumer financing can be critical. For example, in the motor sport and recreational vehicle sector more than half of all retail sales rely on it. Here, products commonly lie in the critical $5,000 to $25,000 price range where consumer financing is considered necessary. Further, purchases of recreational vehicles are largely impulse-driven so in-store financing can be critical for making sales, says Chris Brown, who pioneered in-store consumer financing across Yamaha Motor Canada Ltd. showrooms in the late 1990s. “One of the most important programs available is consumer financing,” he says. “Utilizing it effectively can add substantial dollars to your bottom line and help close sales.”

Comparing Lenders

Many business owners might think that there are very few differences between consumer financing providers. They all provide the same basic service: consumer financing to facilitate sales through affordable monthly payments. However there are important differences in the financing products they offer, how they offer them and the services they provide:

  • Banks are larger institutions offering a range of financial products. They dominate the credit and retail financing market: holding an estimated 97 per cent market share (combined with credit cards). Part of this is because they provide a convenient one-stop-shop solution on financial matters, from consumer and commercial financing to general banking. Their size can be both an advantage and hindrance. For example in some industries they provide slightly better interest rates. Yet, there are many industries they simply will not offer financing in (as Munro Motors discovered) and their service can be lacking. Research by the Canadian Federation of Independent Business found many SMEs using them are lukewarm in their assessment of the service provided, citing issues such as poor service and excessive fees.
  • Instalment credit lenders exist with the sole purpose of providing consumer financing. Their market share of Canada’s $5 billion consumer financing market (estimated by the Bank of Canada) is far smaller. They focus on providing more comprehensive and flexible consumer financing products, working to fill in the gaps overlooked by banks. Importantly, instalment credit lenderswill only get new loans when their merchant partners make a sale, meaning they are often more willing and proactive in working with businesses to make sales. Their smaller size means they can offer a higher level of business and customer support.

Munro’s Solution: Complementary Lenders

The solution for Ontario-based Munro Motors lay in finding a complementary provider, an instalment credit lender, to cover its motorcycle division. The new partnership meant it could offer more flexible and comprehensive financing, with longer terms (up to 120 months) meaning lower payment options were available on Munro Motors entire inventory of second-hand motorcycles. The impact was immediate and noticeable, according to Mr. Munro. So much so that he is now planning on expanding it to cover boat sales.

Why You Should Talk to an Instalment Credit Lender

Munro Motor’s experience is an example of how market knowledge can be a game changer. Banks are the dominant players in retail financing, offering the convenience of serving all of a business’ needs. Yet finding a second provider to give you better flexibility, service or support can make a huge difference. When Mr. Brown implemented Yamaha’s retail financing he learned that finding a partner willing to work closely with them made a huge difference. “Our biggest successes came when we had a lender that was willing to be highly involved with us and work closely with us”, says Mr. Brown, now a profit optimization specialist with Lifeline Business Solutions. Ask yourself if your financing partnership is meeting the versatile needs of your business and working with you for the best results. If it is not, then maybe it is time to investigate a complementary partnership. After all, the more financing options you have the better equipped you are to make money.