Buyers
TRASH!
Stop throwing
in the
How Discount Financing Turns
“Trash” into TREASURE
You’ve spent hours on this sale … the customer loves
your offer and is ready to buy. You submit the credit
application to your “Big Bank” lender. You anxiously
away the results … only to get a DENIAL with no
explanation. All is lost …
Many of the sales “Big Bank Lenders” decline can be
approved by using a secondary (discount) financing
program. This guide will show you how discount
financing can add to your bottom line … so you don’t
throw valuable opportunities away!
A Foundation Finance Resource pg. 2
Discount financing is a term lenders use to describe a
seller participating in some of the risk of financing
credit-challenged customers by paying a risk fee, or
discount, to get the loan approved. The discount fee will
vary based on the credit quality of the customer. The
higher the fee, the weaker the credit profile.
An Example:
$5,000 sale denied by BIG BANK  Seller receives $0
Many dealers are used to the
idea of paying a fee to purchase
a promotional offer for a
customer (e.g. paying 3% to buy
the customer a 6 months sameas-cash promotion).
A Foundation Finance Resource pg. 3
Participating in a discount
financing program is a similar
concept, except here, the
dealership pays a fee to offset
some of the risk of a credit
approval.
$5,000 sale approved by FULL SERVICE LENDER on a 5%
discount fee program (5% fee paid to the lender) 
Seller receives $4750 and the sale is CLOSED!
 Customer receives the full $5,000 in financing.
The risk fee is between the dealer and the lender.
Discount financing does not have to be a scary concept.
Keep reading for ways discount financing can add to
your bottom line by turning “trash” into TREASURE.
While the average FICO score is on the rise, many buyers still fall below some lender standards.
And many won’t consider customers
with other credit blemishes like
foreclosures, bankruptcies or
collections even if they score above
those threshholds.
This could leave a large segment of
your target market unserved. Having
a secondary program in place can help
you reach more customers, which will
lead to more closed sales.
“
We were struggling to get
deals approved in the 600-660
credit score range.
Our other lender decided not
to even look at scores under
700 so we knew we needed to
find a better source.... I feel
like we are in control of our
own destiny again!
– Michael G, Plant City, FL
“
According to TransUnion, while the
U.S. average FICO credit score is
rising, it is still below a 700. Some
“prime credit only” lenders consider
anything below a 720 or 700 to be a
decline.
A Foundation Finance Resource pg. 4
The time, money and energy you put into making a sale is wasted with a credit denial.
Every sale involves costs: You pay for advertising, lead
generators, canvassers, insurance, rent, salaries, mileage
and a host of other items just to keep the doors open and
the sales opportunities coming in. When a presentation
results in a credit denial, that money cannot be recovered.
When looking at discount financing programs, you’re really
looking at making SOMETHING vs. walking away with
NOTHING. Remember, the customer didn’t qualify for a
primary program. Even if your profit margin on the sale is
not what you’d like, you are recovering some of your costs.
$
Rather than looking at discount financing as “taking from the
top,” consider it “building from the bottom” if the alternative is
NO SALE.
A Foundation Finance Resource pg. 5
Even if today’s approval is discounted, you’re setting up a path for future revenue.
Off the
Market
Even if accepting a discounted sale means a lower profit today, you are
building a path to future revenue from that customer.
Sales
 BEAT YOUR COMPETITORS: Take the customer off the market. Making
the sale to that customer today means your competitor can’t close the
deal tomorrow.
 FUTURE PROJECTS: Today the customer needs siding … next year he
needs windows. You’ll be top of mind for the next project because you
took care of him today. And if he has paid well on the first loan, the next
one might qualify for prime programs.
Service
 FUTURE SERVICE: Every customer on the books is a potential source of
future service revenue, which can add to the bottom line.
 GET REFERRAL BUSINESS: Happy customers are likely to recommend you
to their friends and family. Getting a few referrals from a discounted
customer can more than make up for any fees paid.
Referrals
A Foundation Finance Resource pg. 6
“
”
Some secondary lenders buy loans with no fees even when others have declined them.
Every lender has different underwriting standards and criteria. That’s why some
lenders decline a loan while others will approve it. Many lenders who offer
discounted financing programs also have prime credit programs. So you may go
into a credit application thinking you’ll end up with a fee if it gets approved … and
end up pleasantly surprised by a lender offering to buy it at 100% (no fee)!
“
[Having a] vast menu of financing options has allowed us to tailor a program
to meet the customers’ needs while also giving us the opportunity to provide
financing to those customers who previously did not qualify. We are losing far
fewer sales by being able to provide the rate and payment terms desired and
we are walking away from fewer customers due to credit denial.
A Foundation Finance Resource pg. 7
“
– Bryan S, Gold River, CA
Q: If I receive a discounted bid, can I make the customer
pay the fee?
A: No. The discount fee is between the lender and the seller. The
customer is always financed the full amount. Truth-in-lending
regulations do not allow the fee to be collected. For example, on a
$5,000 sale approved at a 5% risk fee, the seller is paid $4,750, but the
customer is still financing the full $5,000 with the lender.
Q: Can I accept a down payment?
A: Yes. Any amount you can collect upfront goes into your pocket
directly without any fees. On a $5,000 sale with a 5% risk fee, you’d be
paid $4,750. But if you can collect $2,000 down from the customer,
you’d make $2,000 + (95% of $3,000) or $4,850 – an extra $100!
Q: What kinds of things determine the discount fee?
A: Most lenders look at the customer’s credit history, income and debt
ratio, and amount of unsecured debt, among other factors. The lender
is looking to balance the customer’s risk of default with the fee
charged. Remember, on a $5,000 loan with a 5% risk fee, if the
customer defaults, the lender still loses up to 95%.
Q: How can I reduce the fees?
A: Get joint applications when possible. Disclose all income. If there is
something “unusual” about the customer’s situation, let the lender
know. And while you can’t pass a risk fee on to the customer, you can
choose to increase your prices slightly overall to build more of a buffer
in your profit margin to help you close more sales.
Q: If the discount is more than I can accept, what can I do?
A Foundation Finance Resource pg. 8
A: Only you receive the risk fee information (not the customer), so if the
fee is higher than you can absorb, you can always try to pursue a
different payment method with the customer. Just keep in mind that
discounted customers typically have been declined by prime lenders
and that they may not have cash or credit cards available to complete
the sale.
Stop throwing valuable buyers away simply
because they’ve had some credit blemishes.
Incorporating discount financing programs in
your sales toolbox can help you close more sales
and build your bottom line.
Interested in learning more?
Visit foundationfinance.com/program-overview/
foundationfinance.com
A Foundation Finance Resource pg. 9