IT and Business Insights for SMB Solution Providers

Going For The Gold: How to Secure Financing

Many channel pros say they can't secure financing. But lenders say there's plenty of money out there--if you know where and how to get it. By Alison Diana By Admin

Financing may not be as interesting as the latest gee-whiz technology, but it's just as integral to an IT provider's livelihood. "We can't survive without it," says Kirk Cole, owner of NuMega Solutions, a reseller that serves government contractors and agencies out of its headquarters in Alexandria, Va.

By enabling businesses to make large technology investments incrementally, financing helps IT providers land more and bigger deals. In fact, financing boosts deal sizes by an average of 20 percent, according to Michael Berg, president of lending agency Churchill Technology Finance LLC. Ready access to leasing can also inspire customers to close deals sooner. "We shorten up the purchasing cycle," says Berg, who is based in the company's Syosset, N.Y. office. "You lose a good percentage of business when you walk out the door without a signed contract. If you offer financing right there on the spot, oftentimes the deal is done [immediately]."

Perhaps that explains why IT equipment leasing has grown to $40 billion a year, up 67 percent from three years ago, according to the Equipment Leasing and Finance Association, in Arlington, Va.

Yet many smaller VARs and solution providers complain that credit is hard to find. On the contrary, plenty of money is available from distributors, vendors, banks, and other finance organizations, provided that you establish a history of timely payments, keep your finance partners informed about changing cash flow patterns, and educate your finance contacts about your business plan.

"If they are open with our credit analysts, we can usually help them," says Kelly Carter, director of credit at distribution giant Ingram Micro Inc., in Santa Ana, Calif. "Get to know us."

These days, there are more lenders to know than ever before. Taking a page from the success of automakers and direct marketers such as Dell, distributors and vendors are actively promoting leasing as an alternative to cash purchasing. For example, D&H Distributing Co.'s Flexible Credit program automatically grants most partners $25,000 lines of credit. "They don't pay any interest for the first 45 days," says Joe Chaudoin, director of credit and financial services at D&H, based in Harrisburg, Pa. "When they pay, we give them 1 percent cash back--even if they take up to four months to pay. It comes right off their bill."

Similarly, last November IBM Global Financing unveiled its IBM Flexible Credit Program, which offers revolving lines of credit to smaller VARs and solution providers. The program provides credit lines of up to $500,000 and no-interest periods of up to 60 days.

Financial services companies are getting in on the IT leasing act too. For instance, Churchill Technology Finance, which is majority owned by global finance giant Credit Suisse Group, has partnered with reseller association NASBA to provide leasing solutions to NASBA members. "We have a 20-minute turnaround and instant documentation," says Berg. "By the time a sales rep is done with a presentation, the lease is ready." Even so, Churchill has set up leasing programs for just 18 members since teaming up with NASBA about a year ago. "I was hoping to be at 50, but it's a much slower learning curve," Berg says.

Churchill isn't alone: Many lenders say that channel partners underutilize leasing, a situation they hope to change through more education. "One of our major pushes this year is to promote our leasing options to our resellers," says Greg Hansen, senior financial services manager at distributor Tech Data Corp., in Clearwater, Fla.

For most businesses, financing is a way of life, notes Hansen's colleague Scott Tillesen, director of credit for SMB accounts at Tech Data. "If you look at the Fortune 500 companies, there isn't a single one that doesn't have bank debt," he says. "[VARs] just need to spend a little bit of time and make the contacts."

NuMega's Cole has already seen how establishing bonds with creditors can pay off. Once, when a former client missed a payment, Cole notified his lender and was not charged penalties or fees. To prevent the same problem from recurring, NuMega opened a line of credit with a local bank, citing its healthy relationship with prime lender Ingram Micro. "A bank is willing to take a chance with a small company if you pay your bills on time and build a relationship," Cole says. "You have to be proactive."

Carter cites other advantages that come from forging close ties with lenders. For example, Ingram Micro will sometimes temporarily extend a familiar technology provider's line of credit based on its customer's financial health, which enables smaller VARs to compete more effectively with larger, better-financed rivals. "We can be very flexible," says Carter. "We do a lot of temporary increases when [known borrowers] get a larger deal."

Studying up on financing options in advance is important as well. "The challenge most NASBA members have is they typically are scrambling to gather finances when something extraordinary happens," according to NASBA director Jim Niekamp. "At a minimum, we think every member should be prepared with a leasing offering and a largedeal financing plan." Of course, solution providers can always fall back on old standbys such as credit cards and cash on delivery (COD). Credit card interest rates can be exorbitant, though, effectively wiping out a chunk of a VAR's profit. And at $7.50 per delivery, COD fees can quickly add up.

Just the same, D&H has seen dramatic growth in COD billings due to increased use of its electronic fund transfer service. "It automatically drafts [a VAR's] account in three days," says Chaudoin. "We have many customers on it." Despite all the financing options available, money still doesn't grow on trees. But partners savvy enough to plan ahead and build relationships with multiple finance partners can reap a healthy crop of funding, no matter how small or large they--or their deals--are.

[Related story]
BY HELPING CUSTOMERS SPREAD PAYMENTS over time, financing can help you increase your average deal size and close deals more quickly.

VENDORS, DISTRIBUTORS, AND BANKS are all viable sources of credit for resellers and integrators willing to invest time in building ongoing relationships.

DON'T WAIT for a major opportunity to come along before researching your lease options. At a minimum, have a standard lease offering and a large-deal financing plan ready to go when needed.

STEER CLEAR OF HIGH-FEE OFFERINGS such as cash on delivery and credit cards whenever possible.

ALISON DIANA is a freelance writer and editor who has covered the channel and technology for almost 18 years. She lives in Merritt Island, Fla., and can be reached at [email protected].

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