Security Funding Associates recently announced that their Equity+Plus program was being made available to qualified PERS dealers. This appears to be a breakthrough product offering that is based on the same structure as the Equity+Plus alarm financing program.
This is, most importantly, a loan program and not a purchase program. Up to this point dealers had few options for loan/equity financing. This PERS program will allow small- and medium-sized companies to create the working capital they need to pay for most, if not all, of the costs related to the creation of each new account. Dealers who want to install a small or large number of PERS accounts will find this program useful. Dealers who feel compelled to sell their accounts (if they can locate a buyer) will instead be able to capitalize their business and build equity for the future.
This program will not work for all dealers, particularly if they have a high cost of creation or if their customer churn is at too high a rate. It is important for the customers to retain the service for the loan term, so a credit minimum of 640 is a new customer criterion. The loan term is eighteen months, so the actual contract term should be 24 or 36 months with a 30-day renewal period. Research indicates that the average contract retention term by the customer is approximately 30 months and seems to be getting longer. There seems to be increasing “Baby Boomer” realization that a PERS unit is an important health appliance. Already there have been rapid advances in the wireless monitoring of patient vital signs, designed to keep the patient in their home rather than a hospital or acute care facility.
For an understanding of how the program works, let’s assume the following example: The typical monthly monitoring amount is $30, the average customer retention is 30 months, and the advance rate is eight times the monthly rate. This would generate an advance of $240 to the dealer. In addition, the finance company is going to prepay the central station and billing expense for the 18-month term of the loan. This will add approximately 3 more multiple to the 8x paid out in the advance for a total of 11 times. Thus the dealer has his monitoring prepaid, his equipment cost covered and still has funds remaining for sales, marketing, and the installation. The dealer’s only remaining obligation is maintenance and some customer service for the 18 month term of the loan. If the contract retention period is 30 months, the dealer will also have 12 more months of revenue, or an additional $360. The portfolio of PERS accounts can become quite large and the cash flow will have a significant value in addition to the aforementioned amounts.
The equity creation from this business plan is expected to eventually reduce the need for traditional loan funding and give the dealer the long term security and cash flow/capital he seeks.