More often than not, financing gets a bad rap. Sure, Apple can mark up a product as high as it wants, and McDonald’s can increase the price of hamburgers, but when the product is money, customers and merchants start to question the ethics behind the markup.
Yet financing these markups has the power to make a positive impact on both the economy and your business. Companies that can overlook the negative stigma and provide financing options will create a viable business model and attract long-term customers from a variety of backgrounds. Here’s why:
Financing Makes Economic Sense
To understand how financing impacts the economy, let’s take a look at the United States’ savings rate over the past five decades. Trading Economics reports that personal savings in the U.S. hovered around 8.39 percent from 1959 to 2015. In May 1975, it reached a record high of 17 percent, and in July 2005, it hit a record low of 1.9 percent. So what do these numbers reveal?
Consumers have been saving less and less over time. By the same token, we can see that people are also earning less: personal income in the U.S. has decreased over the same timeline. It averaged 0.54 percent from 1959 to 2015 — with 3.8 percent being the record high in December 1992 and -5.1 percent being the record low in January 2013.
These trends highlight a major problem: regardless of the statistics, people must keep spending in order to keep the economy healthy. Consumer spending accounts for a large portion of economic activity in the U.S., and it’s a key driver of growth.
Fortunately (or unfortunately), the only way to continue consumer spending in an economy of low personal income and low personal savings is by utilizing financing to continue spending. Customers live in this reality, so it’s vital that your business offers financing as a purchasing option. After all, many of your customers probably can’t pay up front due to these macroeconomic trends, and they need some type of support in order to get the instant gratification they crave. Financing opens up cash flow and turns more inventory. In a world of hypercompetition and thin margins, smart financing serves as a vital tool for staying ahead of the competition.
Financing Builds Brand Loyalty
The state of the overall economy — combined with personal financial struggles — creates an emotional barrier for customers. Luckily, your business has the opportunity to overcome it. A majority of customers are still feeling the effects of the 2008 recession and are working to rebuild. It can be incredibly embarrassing for them to realize that they can’t afford something they want or even need.
Having a simple financing solution for customers builds brand loyalty. When their financial position turns around, they’ll remember the companies that extended a hand when they were striving to get back on their feet. Companies offering bold solutions that meet emotional needs will create faithful customers for life.
Finance options also service fiscally savvy customers: smart consumers may have the cash on hand, but also realize the value of personal cash flow. They might finance to break a large purchase price into smaller future payments or exercise an interest-free loan or a buyout option, while others want to build their credit to decrease their financing costs over time. These kinds of customers understand a dollar today is worth more than a dollar tomorrow.
The fact is that offering a wide range of payment options creates a win-win for your business and your customers. It opens up your customer base, attracting and acquiring a broader range of people who will buy the product. Cash flow is the heartbeat of your business; financing will retain current customers and enable you to turn inventory faster and more effectively.
Smart entrepreneurs understand the macroeconomics of the market and know that not offering financing will only give their competitors an edge. By busting through negative stereotypes and offering financing, you will be investing in your business and consumers — now and in the future.
Dusty Wunderlich is CEO of Bristlecone Holdings, a high growth network of consumer and business-to-business finance platforms and financial technologies. Our mission is to democratize the world of finance for the better and we are unafraid of challenging a deeply entrenched and increasingly irrelevant status quo. Bristlecone leverages its proprietary financial technologies, big data analytics, and algorithmic decision-making to empower consumers with new tools to better their lives and realize their dreams. Through our portfolio of passionately crafted, industry-specific brands ranging from bridal gowns to dairy cattle, we aim to deliver simple, sensible products that the market needs and that customers enjoy using.
BusinessCollective, launched in partnership with Citi, is a virtual mentorship program powered by North America’s most ambitious young thought leaders, entrepreneurs, executives and small business owners.