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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
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

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.”