IT Vendors Offer More Customer Financing to Boost Sales

By Alison Diana  |  Print this article Print

While it may be tougher for IT solution providers to land business lines of credit themselves these days, financing for end-user company purchases of technology are readily available through a host of big vendors and their separate credit arms. Here's a look at the state of financing in the channel.

Although, in the wake of the worst of the recession, solution providers’ access to bank funding continues to be limited, distributors and vendors are rolling out a plethora of financing and leasing options designed to fuel sales and ignite channel business.

Even at the economy’s high-points, traditional money-lenders did not always understand the service-oriented solution provider business model. With so much value tied to people, skills, and intellectual property instead of buildings, products, and machinery, banks were sometimes loath to lend-out large sums of money to growing channel businesses with healthy bottom lines that needed cash to feed further expansion.

Banks—having been burned by once apparently healthy businesses with plenty of bricks-and-mortar assets and huge stockpiles of inventory, often in the midst of sometimes forced acquisitions, and under increased government scrutiny— now have turned off the loan spigot for even long-time customers in good standing, according to industry observers.

In fact, 63 percent of those SMBs that applied for a business line of credit from a bank were denied, the Federal Reserve Bank of New York’s Community Affairs Office found when it conducted a Small-Business Finances Poll in June and July 2010. In February 2011, lenders approved 76 percent of capital spending credit applications, the highest level in at least two years, as credit standards eased, a study by the Equipment Leasing and Finance Association found, according to a report by Reuters.
"Despite signs of improvement, access to capital continues to be a hindrance to growth, innovation and job creation in America's economic recovery.  As an association representing more than 2,500 members in the IT sector, mostly small and midsize companies, CompTIA knows that access to capital is vital to this crucial segment of the economy," said Todd Thibodeaux, president and CEO of CompTIA, in a statement to the House Small Business Committee.

About 43 percent of SMBs consider banks one of the most desirable sources of funding, but only 34 percent reach-out to a bank first for financing, according to Capital Access Network’s (CAN) spring 2011 edition of the Small Business Barometer.  Almost one-fourth, or 24 percent, were rejected by their bank for a loan, credit card, or other financial service—and 77 percent of those who received a rejection did not get an alternative, CAN found.

"What we're seeing—and have been seeing for some time--is that it's harder for solution providers to get bank financing in today's economic climate. Generally speaking, our credit criteria and lending standards haven't changed as a result of the economic climate. We have seen increased demand for alternative financing including end-user financing and more recently leasing, but the criteria and lending standards are the same as they were," Kelly Carter, director of credit at Ingram Micro, said in an interview.

The Channel’s Varied Alternatives

Perhaps not surprisingly, solution providers may not even consider banks first. Indeed, 28 percent of all SMBs surveyed by CAN initially go to non-bank providers; 27 percent rely on their credit cards, CAN said.

Davenport Group, which specializes in Dell Compellent data center storage solutions, works with vendor partners and clients’ existing finance companies, Sonia St. Charles, CEO of the St. Paul, Minn.-based solution provider, told Channel Insider.

"We encourage our customers to look at leasing, although some customers will not evaluate it," she said. "We would definitely go through Dell Financial Services if there’s an opportunity. Probably less than 15 percent [of clients] come in with leasing in mind—unless they’ve had prior leasing experience. If we get to the CFO, we can sell leasing."

After all, leasing allows businesses to write-off equipment as an operating, not a capital, expense, said St. Charles. Companies also are not locked-in to obsolete hardware at the end of the lease, do not have to retire hardware and software, and can refresh technology as desired, she noted.

"End-user financing has been a great option for solution providers who may have been hit by the economy," said Ingram Micro’s Carter. "And presenting a leasing option to the end user can be a great value-add to bring to the sale that may help further differentiate one VAR from another."