Launch HN: Kanda (YC W21) – Let tradespeople offer finance to their customers
Rich was an electrical contractor and after running his firm for 10 years he started to find it harder and harder to compete on price against bigger companies because they could offer pay-monthly options to their clients and he couldn't. When he started to look into it he realized how unrealistic it would be for a little guy like him to be able to offer a pay-monthly option anytime soon.
Why? Because lenders put arbitrary barriers to entry like needing to have a yearly revenue of a $1M, so local contractors like Rich get frozen out and bigger companies can dominate the market. Over 80% of construction businesses are local contractors and most of them face the same problem Rich did. So, together we set out to build a solution and we ended up with Kanda.
Kanda is an estimating tool that contractors can use to send clients estimates. When the client receives the estimate, we (Kanda), will offer the client the option to pay the contractor in full (like they normally would) or to pay them monthly.
If they choose to pay them monthly, then we pay the contractor in full once the client signs off the work and then the client pays us back over the term of the finance agreement, which could be from 10 months to 10 years. This not only helps the contractor to compete on price but it also makes it more affordable for the homeowner to have work done on their house. Win-win.
The way we see it, buy now, pay later is revolutionising e-commerce (for good or bad), and the only reason it isn't happening in offline services like construction is because it's hard to standardize the process of a contractor offering the finance. So, that's what our product aims to do. It aims to standardise how contractors send estimates and how they offer finance. Making it easy for them to do both. We’d love your ideas and feedback on what we are making.
75 comments
[ 3.0 ms ] story [ 131 ms ] threadOften a tradesperson can secure a lien on a property as part of their permit for that job.
If the tradesperson gets paid,then the security on the debt/loan is gone.
In my own case of endless home renovation, a bigger issue is you have to front the workman etc the $$$ to buy the supplies/lumber/etc.
Also in the area where I live, most home trade jobs are done with as much cash as possible to avoid taxes.
The pay cash tax savings is greater then any bank financing.
When you pay 50% income taxes you can see that the incentive to work cash is much much greater then formal financing.
If a car repair was going to cost $1000, the tradesperson keeps $500 after tax. He's better off to offer you $750 cash. Take $500 now (he's paid up).
Then if he still collects the $250 cash that's pure bonus.
I didn't even factor in the 20% sales taxes on the work the buyer would have to pay.
All I can say is don't try to expand to a newly third world country like Canada. I just can't see it working here.
So a (filing single) contractor making 160,000 in California would pay more like $60k in total taxes (which is still 37.5% effective).
But given the number of UK folks for this topic, the “Social Security” and FICA amount (~15%, so nearly half of “tax”) is effectively similar to National Insurance.
Most trades in Canada are max tax rate, because the max tax rate kicks in at extremely low levels compared to USA.
Someone earning 60K USD in Canada (~75K CAD) would have a marginal income tax rate ranging from 27% to 38%, depending on their province. If they're a contractor, they'd have access to a bunch of deductions against their expenses. They could further use an RRSP to shelter their income, or at least defer taxes to future years with lower income, thus driving their average tax rate down.
Are you an expert in international legal environments for contractors, or are you just assuming that because it's difficult in your jurisdiction (also, tbh, your arguments in that sense are not that persuasive either), it's difficult all over the world?
Best of luck with Kanda!
Our dealer fees are between 21-30% of the total loan, but the term is usually 20-25 years long.
So, it's not more expensive.
By the way, there’s a misspelling “Downlaod” on your pricing page.
Thanks for the heads up on the spelling mistake! Slipped through review somehow!
Personally the issue hasn’t been financing because you can get outside financing to fund any renovations already.
What I want is an intermediary that takes the money and acts as an escrow and only gives the contractor payment once observable metrics have been completed, e.g. bathroom was completed with permits pulled and inspection done by the city; 4/4 recessed lights installed per agreement, etc.
In my experience the biggest issue for contractors and homeowners is one party not living up to their end of the agreement.
In other words I want to be able to write a contract like code and want guarantees about what I’m paying for. If and when unexpected things happen they should’ve already been explicitly discussed in the contract.
For customers, however, we do know that an issue can be that work isn't completed to the standard you expect. One of the products Kanda hopes to bring to market soon is a secure holding account to arbitrate payments, allowing upfront payment with tranches released on milestones being completed, pretty much exactly as you've explained above, to hold both parties to agreements.
Your pricing [1] is simple, but I'm a bit surprised that there isn't something that scales with volume. For example, I know banks and retailers commonly offer 0% interest over 10 months for direct customers, but that's with the hope of additional related business. Are you that "more business"? (it seems like maybe? Since some jobs are not interest free and the basic plan is also with interest).
Alternatively, what does "9% subsidy instead of 11% on successful finance applications" means? (I was put off by the intercom chat widget wanting me to provide an email to watch your demo video. Sorry. I'm also not a potential customer). Is that where the risk premium gets included?
I also get to repeat the patio11 meme: charge more. For 45 pounds a month at the top end, you've probably returned a small fortune to the business owner. Even just handling the quoting and receipt of payment part is a big deal! (Here in San Francisco, it can be hard to get an invoice from a contractor and even send them payment; we've had to follow up for months!). Tossing in Financing and support for cards (and do you mean "debit" or also "credit" cards; I know you're UK based, so the defaults are probably obvious to your audience, but I figured I'd ask).
Either way, sounds like a big win for small shops!
P.S. There's also a "Downlaod" typo in the first pricing column.
[1] https://www.kanda.co.uk/pricing
https://www.youtube.com/watch?v=pVHBFHTNS90&ab_channel=Kanda
For card processing, we actually support both debit and credit cards, though typically we process debit cards and have a subsidy charge for credit card processing, due to higher processing fees from the banks.
We do think Kanda is a big win for the small guy - we put the power in their hands to compete with the big companies in the sector, offering finance products they couldn’t otherwise offer and winning more work for it
Kinda odd to have fees that big though... I thought the norm in the industry is to pay money the other direction, with the understanding that a good portion of customers will fall behind on finance payments and then have to pay sky high fees and interest rates for decades to come...
Lots of stores (here in the UK at least) will, after you've decided to buy a product try to persuade you to use their financing. Sales reps usually get bonus only for customers who use financing. I always assumed companies earned more if you used financing.
For our tradespeople, most of their customers know they can get finance from companies like British Gas. Even though our tradespeople would be cheaper outright, BG can offer 0% and so the customer doesn't have to pay it outright. We've had people tell us they signed up to use us for this very reason, with someone even saying BG were £1000 more expensive, but the customer went with them as they could pay monthly!
Typical financing options like Affirm only charge 2-3% to the retailer.
The 0% financing is a bit misleading as they're just collecting their profit up front as a separate fee (the 9-11%) instead of collecting it as interest over the course of the payback period.
Expecting contractors to take a 9-11% cut out of their profits is not likely, at least in my area. Realistically I'd expect contractors to raise their quotes by the amount of the financing fee so they come out at the same final payment amount.
I’m not used to the term “subsidy” used in this manner (is this a common British English usage for “fee”? In the video you use the term “fee”), but if you’re basically charging ~10% of the invoice then that’s a very different story.
In that universe, the monthly charge is basically your hurdle for support. Free / cheaper would give you more volume, but you probably don’t currently want folks who aren’t willing to pay even a few pounds a month for support. I’d still say there isn’t enough spread between those plans though.
Like the downstream comment, I feel like I’d want the fees more clearly spelled out on the pricing page. “Offer installment plans to your customers (11% fee)” or something. It would make it more clear that “oh, I’ll be using that, I should take the other plan for the 2% drop; even 1000 pounds of work a month pays for itself”.
The video makes it clear that in your UI the fees are more clear (though I might add a paragraph break when describing that the financing option is “cost to you: 11%” and the personal loan “cost to you: 0%” but then say “customers prefer the 0% interest, even with higher quotes” or something). So I think to improve your customer acquisition, you just need a bit more clarity in the pricing panel text.
P.S. thanks for the video! I think you had an editing problem though. The “let’s see the customer view” happens both at the start and again after we see the vendor-side view. (Unless that’s intentional)
I'd suggest the opposite: Drop monthly fees to $0 and leave it to the per-transaction fee (what they call a "subsidy", confusingly).
Charging customers a monthly payment only to follow up with a steep 9-11% transaction fee when they actually use the service is not a recipe for happy customers. You also risk churning contractors off the platform if nobody takes their financing option for a month or two. You're going to get people trying to cancel and then re-subscribe as soon as they find a customer who might want financing, only to cancel again.
IMO, ditch the monthly fee so you don't give people a reason to cancel.
Also, drop the lowest priced plan. It doesn't make sense to have a £25 plan right next to a £30 plan. If someone is buying the service, making them jump through the mental hoops to calculate if £5/month is worth it for them is friction you don't need. Simplify to 2 plans, or even 1 plan.
If you can reduce the mental load of signing up from "Which of these 3 plans, if any, is right for me?" to "Should I sign up yes or no?" it's a win.
> Why? Because lenders put arbitrary barriers to entry like needing to have a yearly revenue of a $1M
This seems incomplete. Why is it unrealistic to offer the option directly? As a small business, maybe you can't get a bank to lend your customers money so they can pay you the full amount up front. But you can lend your customers "money" so they can pay you monthly; this doesn't even involve a money transfer.
This seems a little glib. Everyone is a risk of non-payment. I have total confidence that over ten years of operation, there will be at least one occurrence of non-payment.
If you're actually providing 0% financing -- you pay the tradesperson $X up front and collect $X over the next 24 months -- that would mean you start out being able to employ zero people, and even the most infinitesimal risk of non-payment immediately puts you in the red.
Pipe is doing a similar thing but their threshold is $100kARR
You'd be in a pretty good position for this given the view you'll have of contractors number of disputes and similar.
Seems like an excellent idea to me, best of luck!
Another thing. Small business contractors have got to be the most dishonest people I've ever worked with. I've caught so many lies and frauds. Only reason I don't report them is because they'd kill me or destroy my property. I'm not going to entrust them with any personal information that they could use to overcharge me, charge me for other jobs, or associate me with any other scam jobs they're running.
Be strong! You're going to be dealing with characters..
In terms of the dishonesty, we believe that's a completely untrue and unfounded accusation. We have a very trust worthy base of users, who whenever an issue has been raised have been the first to jump at rectifying the situation. In our contractors eyes, customers can be the untrustworthy ones, not paying on completion, saying things aren't up to code when they are, accusing the contractor of property damage they didn't cause. We try not to discriminate.