How to Partner with Lenders to Offer Musical Instrument Financing

How to Partner with Lenders to Offer Musical Instrument Financing

Running a music business is a great way to nurture your passion for music and turn it into a career. But like many small business owners, you likely face challenges in offering credit or financing options to customers. Musical instruments are not cheap, but they’re probably the most important inventory you have to sell through.

While some customers may opt to put an instrument purchase on a credit card and pay it off later, music instrument financing can be a compelling offer for customers on the fence. Offering in-store credit approval and financing programs that suit your customers’ needs could make it easier for them to buy higher-ticket items and keep a steadier stream of revenue in your store.

There are several ways you can set up music instrument financing in your store, which we’ll explore here.

In this article:

• The key benefits to music instrument financing for music stores.
• How to partner with lenders to set up music store financing programs for your customers.
• The most important considerations to bear in mind when setting up financing solutions.

Why You Should Offer Music Instrument Financing

Music stores and dedicated music instrument retailers that offer financing can attract more customers who aren’t able to afford the full cost of an instrument upfront. By offering a range of payment options and financing programs, you can increase sales, a major benefit when small business sales are sluggish nationwide. But that’s not the only benefit:

• Attract new customers: Music instrument financing can help you appeal to a broader audience. Everybody loves music, but not everybody can afford an instrument. With financing programs, you can lower the upfront cost, which can expand both your in-store and online customer base. Music instrument financing can make music more accessible, which is a net positive for the community.
• Build customer loyalty: In any business, customers are more likely to return if they have a positive experience. Music lovers may come back to get materials or accessories like amplifiers or straps for their instrument or even finance another instrument if a financing program makes that possible for their budget.
• Supports other programs: If your store also offers music lessons, increasing the number of instrument sales you can make also broadens your customer base for lessons. You can offer a free lesson or gift cards as part of a financing offer, so in addition to being able to make convenient monthly payments on the instrument, customers will have a reason to keep coming back to your store.

Best Music Instrument Financing Solutions

Music instrument retailers can provide their own in-store financing options or work with lenders to offer more robust financing solutions. Some of the top options include:

• In-house financing: Financially savvy business owners can offer financing directly to customers in the form of store credit. You manage the credit and repayment process and make the credit decisions, maintaining control over the terms and conditions of what is effectively a store loan. This allows you to work directly with customers, but you’ll need a very effective system to mitigate risks.
• Third-party financing: Partnering with an external financial institution allows you to pass off the responsibilities of credit assessment, payment processing, and risk management. They cover qualifying purchases outright, usually charging equal monthly payments to the customer over a set period of time. This way, you can offer music instrument financing with reduced risks to your business.
• Lease-to-own: You can offer a lease-to-own program managed by yourself or through a lender. Typically, this offers lower monthly payments than traditional financing and offers customers the option to give back the instrument or buy it at the end of the term. It’s a good option for students who may not decide to keep playing the instrument long term.
• Buy now, pay later (BNPL): There are many BNPL providers on the market that allow customers to buy a product now and pay for it over time. Services like Klarna and Affirm are fairly well-known, but there are also specific music instrument financing options like Synchrony, too.

How to Create a Financing Program

Setting up a music instrument financing program requires time and patience. You want to provide a service that your customers will not only use, but appreciate and value enough to keep coming back to your store.

Setting up a financing program with a lender is typically better than managing one yourself. You have enough on your plate running a business, so let a lender handle credit approval, onboarding new accounts, and processing required monthly payments. More importantly, if customers fail to repay the loan, it’s on the lender to collect since you’ve already been paid.

Here’s a step-by-step process to set up your music instrument financing program.

Explore Your Options

First off, you must make the determination between in-house or third-party financing. Assuming you’d prefer the convenience and efficiency of third-party financing, you must determine what’s most important to you when working with a lender. Consider factors like:

• Interest and fees the lender will charge customers
• Terms and repayment periods offered by lenders
• The application process for customers
• Credit limits offered by the lender
• Fees charged to your business
• Tools and services offered, like a central management portal or customer relationship manager (CRM).

Any third-party service should make it easier for you to sell to customers and for customers to pay for instruments. If a service charges exorbitant fees or is unnecessarily complicated, it’s probably not worth it.

Determine Eligibility Criteria

Spreading a love of music by approving every customer is a noble idea, but it could have serious financial consequences. Not every customer will pay you back, and not every customer should qualify for financing.

You could set your own eligibility criteria based on credit score thresholds, employment status, or proof of income, but a third-party lender will likely make this process much easier. They’ll typically have their own process to automatically prequalify customers and expedite loan approvals.

Implement the Program

A music instrument financing program should be a big deal to your customers and can make a significant impact on your business. Therefore, your rollout of such a program should be carefully done and broadly advertised.

Here’s a checklist to guide you:

1. Set up the application process: Your lender may guide you through this step, but it’s important that you make it easy for customers to apply for a loan in-store at your POS system, as well as online if you offer an online store. Customers should be able to access music instrument financing anywhere they can be an instrument from you.
2. Train staff: Educate your employees about what financing options are now available. Teach them how to help customers through the application process and how to explain the benefits of music instrument financing. Staff should be able to answer customer questions and troubleshoot issues.
3. Tell your customers: Finally, your marketing should highlight music instrument financing. You could add a page to your website that talks about financing solutions, post on social media, hang signage in-store promoting your programs, or even take out ads in local publications.

Challenges of Creating a Music Instrument Financing Program

Working with a third-party lender can mitigate many of the challenges of creating a music instrument financing program, from determining eligibility requirements to managing repayment schedules. Nonetheless, there are still a few challenges to keep in mind when working with a third-party lender:

• Marketing: You still need to effectively promote your financing options. Customers need to know that they don’t have to pay full price today to get an instrument.
• Training: While experienced financial service providers can reduce borrowing risk and handle loan logistics, it’s your responsibility to ensure employees know how to communicate the benefits of music instrument financing and accurately explain how programs work.
• Accounting: Offering a financing program may lead to a sudden uptick in big-ticket purchases and give your business a sudden influx of cash flow. It’s important to effectively manage this increase in revenue to ensure you stay compliant with tax obligations and invest in sustainable growth for your business.
• Legal and regulatory considerations: Always check local financial regulations and consumer protection laws to ensure you’re meeting standards for communicating terms and conditions to customers. It’s a good idea to consult with a lawyer or compliance expert when rolling out any financing program.

Final Thoughts

Music instrument financing can help your music store reach more customers and sell more big-ticket items. Setting up an in-store financing service on your own is more cost-effective, but it will come with a host of headaches and could risk compliance and management issues. Working with a third-party financial service with experience in music store financing may cost more, but it will help you reduce risks, manage logistics, and let you focus on the most important aspects of running your business. With this guide, you’ll be well on your way to setting up a program soon.

FAQs

What is music instrument financing?

Simply put, it’s just a financing program that allows a customer to buy an instrument now and pay for it over time. You can offer in-store credit as a form of financing or work with third-party lenders to offer more robust financing programs.

What are the drawbacks of in-store financing?

Although in-store financing may be less expensive, it also requires extensive management, from credit approval and payment management to addressing regulatory requirements for financing programs. It can create more headaches than it solves and leaves your store more exposed to scams and fraud.

What are the benefits of third-party music instrument financing?

Working with a third-party financial service provider is more expensive, but they’ll ensure you’re always paid in full for an instrument you sell. The customer takes credit from them rather than you, so your business still gets the full value of the instrument while the lender assumes the responsibility of managing the loan.

How do you set up music store financing?

Offering financing to customers is pretty easy today. There are many financial service providers with music store experience that can work with you to provide financing programs. It’s just a matter of doing the research, finding terms you like, and implementing the processes.

Are there risks to music instrument financing?

Most of the risks are assumed by the lender. However, you should always consult with a lawyer before instituting any financing solution to ensure that the program is compliant with local regulations.

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