Surviving the Recession: A Guide for Contractors and Dentists on Financing

Imagine you’re a kitchen remodeler looking at a $38,000 granite-and-glass backsplash job or a periodontist preparing to quote a $19,000 full-arch implant. For years, you could easily smile, hand the client an iPad, and let a third-party lender work their friction-free magic. Approval rates hovered around 80%, promo periods stretched into two-dozen interest-free months, and your back-office team received next-day funding.

Now, the economic forecast has turned ominous. J.P. Morgan recently raised its recession odds to 60% due to tariff-driven cost shocks (source: JP Morgan). Wall Street lenders are feeling the chill first, and they’re already resetting the rules that power the financing programs your business depends on. In fact, it’s not a matter of if these changes happen, but when they will. Below is a rundown of what you can expect from your lending partners over the next year, and how you can prepare to navigate the shift without losing customers.

Higher Hurdles at the Cash Register

As the economy tightens, expect the approval criteria for contractor financing to become more stringent. Banks and fintechs have already begun nudging the approval bar higher, as confirmed by the Federal Reserve’s January Senior Loan Officer Opinion Survey. For contractors relying on customer financing for contractors, this means fewer customers will qualify for loans unless they meet higher credit-score requirements.

Translation: If a 680 FICO score was good enough to get financing last spring, you can expect your lenders to now push for a 720–740 FICO before giving the green light. Approval rates will likely drop across the board, and that could mean lost sales if you don’t adjust your processes to deal with more cautious lenders.

Shorter Promo Periods, Nastier Back-End APRs

Promo periods are getting shorter, and the back-end APRs are getting much higher. Deferred-interest windows that once stretched 18–24 months have already been reduced to just 6–12 months for many lenders like CareCredit (source: WalletHub). After the promotional period ends, the go-to interest rate could skyrocket to 32.99%.

For contractors offering financing to customers, this is a significant shift that will likely make it harder for homeowners to afford larger remodels or for patients looking to get dental procedures. If your customer base relies on the best contractor financing options, you’ll need to adapt and start preparing for the reality of these changes. Expect smaller loans and fewer flexible repayment terms moving forward.

Smaller Tickets and Shorter Repayment Clocks

As lenders begin tightening their belts, loans that once stretched to seven years are now being reduced to a more standard 60-month term. This is already happening in the auto-finance market and will soon extend to home improvement and dental loans. For contractors, this means you may have to break up larger projects into multiple loans or require a larger down payment upfront.

Prepare for the reality: larger jobs might no longer be as easy to finance with a single loan. Instead, expect customers to face shorter repayment windows or be forced to pay more upfront. That could alter how you price and structure your services.

Merchant Programme Costs Creep Higher

With investors (lenders) demanding higher margins for riskier loans, expect the costs associated with contractor financing to rise. You might see:

• Provider fees increase, meaning the discount you receive from a lender could grow from 7% to 8% or higher.
  
  
• Reserve or chargeback holdbacks widen, affecting your cash flow and increasing the overall costs of financing. This could mean larger holdbacks from your lender for higher-risk customers, as indicated by Kroll Bond Rating Agency’s latest ABS structures, which suggest loftier over-collateralization. Source: Kroll Bond Rating Agency
  
  
• Longer settlement lags. As lenders implement additional fraud and risk checks, the time it takes for you to receive funds could stretch from same-day to 48 hours.
  
  

It’s not a question of if these changes will happen—they already are, and you need to plan accordingly to account for increased fees and longer waits for funding.

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Regulatory Crosswinds Force Extra Paperwork

Regulatory changes are also on the horizon. Illinois, for example, has introduced new third-party financing laws that will require stricter lender disclosures and additional steps for obtaining financing on behalf of customers (source: McHenry County Dental Society). On a federal level, the CFPB is placing more scrutiny on financing programs in healthcare, which could slow approval times.

You’ll need to be ready for these shifts, particularly if your practice or business is located in a state with new regulations. Regulatory changes will slow down the approval process, and you’ll likely face increased paperwork to stay compliant with the law.

Underwriting-by-Algorithm Goes (Even More) Real-Time

AI-driven platforms have boasted 85% approval rates on dental loans by using cash-flow analytics instead of relying solely on credit scores to approve loans. But as economic uncertainty grows, even these platforms will tighten their loan parameters. Expect lower maximum loan amounts for subprime borrowers and larger upfront deposits.

These shifts will impact how much your customers can borrow and how much they’ll need to pay upfront. It’s going to happen—so start factoring these changes into your pricing and sales approach now.

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What You Can Do (Starting This Afternoon)

Given these upcoming changes, here’s what you can do right now to safeguard your business and ensure your customers still have access to financing, even when credit is tightening:

• Pre-qualify early and often. By embedding your lender’s soft-pull link into your first email, you can quickly determine whether a prospect is finance-ready before you spend time on estimates.
  
  
• Quote tiered packages. Offering a “good-better-best” menu lets you slot customers into a financing package they can afford, while still accommodating larger projects.
  
  
• Spread the lender risk. Use at least two financing providers—one for prime customers and another for near-prime or subprime clients. This ensures you’re not left without options if a lender suddenly makes a drastic change to its program. Platforms like FinMkt make this process easy with a waterfall-lender approach.
  
  
• Pad your timeline. With funding delays now possible, adjust your project timelines to allow for extra days. This ensures that you won’t be caught off guard when the funds take longer to process.
  
  
• Stay compliance-literate. Keep up with changing regulations and ensure your staff is trained on how to manage loan applications and disclosures. Stay proactive about the paperwork and compliance updates.
  
  

Closing Note: Recessions End, Reputations Endure

Yes, the money tap is tightening. Approval rates are likely to fall, and promo offers will shrink. But these economic downturns don’t last forever. By adapting to these changes now—refining your processes, managing customer expectations, and staying proactive about financing options—you’ll not only survive the tightening but emerge stronger.

The key is preparation. Recessions end, but your reputation will endure. Adjust your business strategies today, and when the market rebounds, you’ll be in the best position to thrive.