Most small businesses that offer financing don’t lend their own money. They partner with a third party that approves the customer, pays the business and collects the payments. It’s the fastest way to give customers a monthly payment option without taking on credit risk, billing or collections.
This guide explains how third-party financing works, what it costs, how to compare providers, and how to make sure as many of your customers as possible get approved.
What third-party financing is
Third-party financing means an outside lender or financing program, not your business, extends credit to your customer. The customer applies, the provider makes the credit decision, and if approved, the customer signs a financing agreement with that provider. Your business delivers the product or service and gets paid by the provider.
That’s different from in-house financing, where your business lets the customer pay you over time and carries the risk of non-payment itself.
How it works, step by step
- Your customer applies. They complete an application through a link you share by text or email, on your website, or at checkout. It usually takes a few minutes on a phone.
- The provider makes a credit decision. The lender reviews the application and returns an offer: an amount, a term and an interest rate.
- Your customer chooses and signs. They pick the monthly payment that works for them and e-sign the agreement.
- You get paid. The lender pays your business, typically upfront, minus its merchant fee.
- The customer repays the lender. Billing, reminders and collections are handled by the lender, not your staff.
Benefits for small businesses
- More sales closed. Customers who can’t pay the full price today can buy now with a monthly payment.
- Larger purchases. When the decision is about a monthly payment, customers are more willing to choose the complete package or project.
- No credit risk. The lender carries the risk if the customer doesn’t pay.
- Faster cash. You’re paid upfront instead of waiting on installments.
- Less admin. No statements, payment tracking or collection calls.
Single lender vs. multi-lender platforms
The biggest difference between third-party options is how many lenders review each application.
A single lender approves a certain range of credit profiles and declines everyone else. If a meaningful share of your customers have limited or challenged credit, many of them will be declined, and those sales usually end there.
A multi-lender platform sends one application through several lenders in order. Client Financing’s waterfall moves each applicant through 10+ BNPL and consumer lenders, from prime to near-prime and sub-prime, then to Everyone Is Approved programs. Customers declined by one lender keep moving down the waterfall automatically, without a second application. You can also add your own payment plans to the waterfall through LMPP.
Financing for every credit profile
Customers with lower credit scores still need roofs, dental work, training and services. A waterfall that includes near-prime and sub-prime lenders and Everyone Is Approved programs lets you approve more of those customers, without taking on the risk of extending credit yourself. Offers for those customers may carry higher rates or shorter terms, so presenting the monthly payment clearly and honestly matters.
What third-party financing costs
There are two sides to cost:
- Your cost: lenders charge the business a merchant fee, deducted from the amount they pay you. It varies by lender, program and promotional terms. 0% promotional offers to customers generally carry higher merchant fees.
- Your customer’s cost: the interest rate on their plan. With Client Financing, rates range from 0% to 29.99% depending on the lender, program and credit profile.
If merchant fees are a concern, LMPP plans have no merchant fee. You keep 90% of what’s collected, paid weekly, and Client Financing keeps 10% for handling agreements, billing and collections.
An example
Illustration only. Real offers depend on the lender or program and the application.
A small business sells a $7,500 package. A customer with a credit score in the low 600s applies. The first lender declines. The application moves to the next tier, and a sub-prime lender approves 36 months at 17.99%, about $271 a month. The customer signs, and the business is paid upfront by the lender, minus its merchant fee. With a single lender, the sale would have ended at the first decline.
Customer financing for construction and home services
Construction, remodeling and home service projects are some of the best fits for third-party financing. Projects are expensive, often urgent, and rarely planned for. A monthly payment option helps homeowners approve the full scope of work instead of the minimum. See home improvement financing and 6 reasons contractors should offer client financing.
How to present financing to your customers
- Show the monthly payment beside the price on your website, quotes and proposals.
- Offer it before the price objection, as a normal way to pay, not a rescue.
- Make applying immediate. Text the link while the customer is still with you, so they see their options in minutes and can decide on the spot.
- Follow up on approvals. Customers who are approved but haven’t signed are your warmest leads. A quick call often closes the sale.
How to choose a financing provider
| What to compare | Why it matters |
|---|---|
| Approval coverage across credit tiers | Determines how many of your customers leave with an option |
| Merchant fees | Comes out of every financed sale |
| Rates and terms offered to customers | Affects whether customers accept the offer |
| How and when you’re paid | Upfront funding protects your cash flow |
| Contract length and minimums | Long contracts and volume minimums limit your flexibility |
| Setup and training | Financing only works if your team presents it well |
| Reporting | You need to see approvals and follow up quickly |
Client Financing has no long-term contract and no minimum volume, a real person sets up your waterfall and trains your team, and every application across every lender appears in one merchant portal.
Ready to offer financing? Client Financing provides customer financing solutions for businesses through one application that reaches 10+ lenders. See how it works for your business: client payment plans for professional services.
FAQ
Does my business take on any risk with third-party financing?
No. The lender extends the credit and collects the payments. If the customer doesn’t pay, that’s the lender’s risk, not yours.
How quickly do I get paid?
On lender-funded sales, the lender pays your business upfront after the customer signs, minus its merchant fee. On LMPP plans you’re paid weekly as your customer pays.
Can I offer third-party financing and in-house plans at the same time?
Yes. With Client Financing, LMPP plans can sit anywhere in your lending waterfall alongside third-party lenders.
What size purchase is worth financing?
Most businesses offer financing on purchases over about $1,000.
Learn how to offer client financing, see how it works, or get started.