As if plummeting investments and shaky job security weren’t enough to chill homeowners’ remodeling plans, they may also have less access to credit — home equity loans and lines of credit, construction loans, plastic, you name it — than they thought. The credit crunch has curbed the borrowing power of businesses as well, including manufacturers, lumberyards, and, yes, remodelers.

Remodelers report being affected in myriad ways, such as losing jobs when loans don’t come through, halting or scaling back projects well into the design or even construction process when loan amounts are reduced, and postponing projects while clients await loan authorization. Loan-to-value ratios have dropped from as much as 100% to 75% or 80%. Gone are the “drive-by” appraisals that assumed home values would continue to rise. And credit scores above 700 have for many lenders replaced 650 as the new baseline minimum.

Fiscal Vigilantes

Jeff Titus first experienced the new reality midway through a job last winter, when a client (a wealthy attorney, he notes) learned that Countrywide was reducing his home equity loan. To get the loan reinstated, the owner of Titus Built, in Wilton, Conn., had to write a letter to the bank. Greg Harth of Harth Builders, in Spring House, Pa., foresaw the crunch even earlier. “About a year ago, we strongly encouraged clients to talk with lenders at the beginning of the design process,” he says. “There’s nothing more frustrating than not being able to build your dream at the end.”

Well, except not being able to even get the materials for those dreams. In Roswell, Ga., John Rogers of John Rogers Renovations lost his major distributor when a local building supply company went belly-up last summer. “I went from having one supplier that had the best prices and plenty of stock to having to shop things with several suppliers. It sucks,” he says. “We’ve had to eat the price difference.”

What can you do? Be vigilant. This might require stepping outside your comfort zones.

If a client is relying on home equity, for instance, “The remodeler has the responsibility to make sure the homeowner still has the funds,” says Bruce Christensen, vice president and general manager of GE Money’s Home Improvement Division, which has financed $18 billion worth of remodeling work since 1998.

Noting that homeowners sometimes overlook lenders’ letters notifying them of reduced credit lines, Christensen says to not only ask but to also verify how a client will pay. Even before starting design work, he advises, have the homeowner get a verification letter from the bank that confirms how much money is still available, and through what date.

Keep tabs on your trade partners’ finances, if possible; some remodelers do this by going online to check their local tax recorders’ listings for liens against companies. Diversify your own credit lines as well. “Have a healthy relationship with more than one bank,” Harth says. If you have several lines of credit, use them all periodically, and pay them off, to keep them alive and in good standing.

Rewards in Flexibility

Think about how you might help clients as well. One still-strong possibility for many home improvement loans up to $25,000 is a non-equity based Title One FHA loan, says John Kuprevich, vice president of Domestic Bank, a Rhode Island bank that works with contractors all over the country offering a program that is “growing by leaps and bounds.”

Whoever your client is, Kuprevich agrees, “It’s very important to ask, ‘How do you plan to pay for this?’” He’s developing a program to help contractors have that discussion.

Scheduled payments and monthly installments have helped Atlanta Design & Build secure projects with strong clients who feel the credit pinch. “We’ll consider this as the market dictates, and if we’d really love to build for them,” says Guy LaMarca, general manager. One such client, he notes, was so grateful that they “sent us a bottle of champagne and thanked us in a nice letter that we were willing to work with them to deliver the final product.”

Another reward for LaMarca’s company? Direct referrals from these clients to other potential clients.

RELATED WEB LINKS

“ Where Have All the Lenders Gone?” by Jim Cory, Replacement Contractor magazine, October 2008

“ Can You Get a Loan?” from Kiplinger’s Personal Finance Magazine, January 2009