Traditionally, IT financing was mostly about leasing and purchasing hardware. Not anymore. Today, with the uptake of services, cloud and Software as a Service (SaaS) as businesses strive for IT agility, IT solution providers are finding more creative financing options to use as a springboard to close deals.
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Vendors as well as distributors and independent finance companies are being forced to be more dynamic with their offerings as customers grow fond of paying for IT solutions on a monthly recurring payment model as an operating expense, with little interest in owning anything.
While most industry players agree that underpinnings of lease versus purchase remain the same, channel partners are seeing more creative finance options move to the forefront. Those options include "solution financing," technology financing aimed at SMBs and, slowly making an appearance, Hardware as a Service (HaaS), among other methods.
As a business partner, I wish everyone would lease.
senior sales manager, MapSys
Both finance companies and channel partners benefit when end-user customers opt to finance. "It gives them control over the account. They get both the physical and financial footprint," said Rob Schafer, researcher director at Gartner Inc.
In the case of a lease, 80% of the time the lease doesn't reach the end of its term without something else happening: The lease gets extended, the customer upgrades or adds equipment, or they buy it outright, according to Schafer.
John Lambert, senior sales manager at MapSys Inc., a 26-year-old IBM channel partner located in Columbus, Ohio, is a fan of leasing. "As a business partner, I wish everyone would lease," he said. "And, the IT guy loves a three- to five-year refresh if they can easily access a monthly lease stream."
Targeted technology financing programs
IBM Global Financing (IGF), considered one of the more creative IT financing companies, is not only changing with the times, it's leading the way.
In November 2012, IGF announced that it was providing its business partners worldwide with $4 billion in financing for credit-qualified clients over a period of 12 months. This release of funding followed a previous announcement made a year earlier.
In September 2011, IGF made $1 billion available for credit-qualified small and medium-sized businesses (SMBs) over an 18-month period to help them take advantage of advanced technologies such as analytics and cloud.
"To our surprise, the financing was consumed in 12 months," said Tom Higgins, director of IBM Global Financing, general business and channel sales group. "So we made more funds available to channel partners for their customers regardless of size," he added.
SMB-focused technology financing, in particular, is vital to partners to close deals. "We definitely see this more with SMBs than larger companies, especially since businesses stopped buying with the economic downturn in 2007 and 2008," said Bryan Ferrario, CEO of Alliance Technology Partners of Chesterfield, Mo., a 12-year-old SMB-focused services provider.
Perhaps one of the biggest changes in financing is solution financing, or the ability for partners to help customers find financing for a complete, or turnkey, IT solution -- multivendor hardware, software and services -- under a recurring monthly payment plan. While some financiers have been offering solution financing for several years, the scope of what's included has expanded overtime.
"What's new is that our ability to finance services has gotten better," said Gerri Gold, vice president of global sales and marketing at HP Financial Services. That's key to partners since solution selling -- the sale of a complete multivendor solution -- includes both margin from the vendors involved and profit on services.
IGF settles with partners five days after the deal is closed. "That's a huge cash flow benefit to the partner," said Higgins.
Distributors such as Ingram Micro Inc. and Tech Data Corp. are also central players for the channel when it comes to finding customer financing, and they partner with large vendors as well as independent and niche financing companies.
While Kelly Carter, director for credit at Ingram Micro Financial Services, said that the overall demand for credit hasn't changed, the types of technology financing that customers are looking for has, particularly in the last three years, around solution financing as well as financing to the reseller who handles the end customer.
"The partner provides an integrated solution to the end customer who pays on a monthly basis and has no obligation for the equipment," she said, describing solution financing.
Ferrario hasn't yet gone the route of getting the financing and then offering customers a monthly payment without obligation for the equipment, but he is absorbing the industry buzz about this trend and sees the writing on the wall as customers enjoy paying monthly for IT solutions without having to own anything.
Scott Tillesen, vice president of credit and customer care for Americas at Tech Data, said, "Increasingly we need to find financing companies who are willing to fund a stream of payments with far less or no collateral -- that's the new financing world," he said.
The cloud and HaaS
Cloud presents an interesting challenge for partners and financing companies.
Industry players agree that cloud, in particular, has played a significant part in how businesses think about financing. "A potential financial reason for companies to migrate to the cloud is that it's an operating expense versus holding equipment and putting it on the books," said Schafer.
Lambert agrees. He lost an on-premises ERP upgrade deal when his enterprise customer opted for a niche industry ERP SaaS solution -- with no need for hardware or software.
That leads to HaaS.
Last month, at Ingram Micro Cloud Summit 2013, the distributor announced an initial HaaS rollout that features nine pre-integrated HaaS bundles of HP and Lenovo laptop or desktop hardware. Paul Hoffman, senior director for cloud and technology solutions at Ingram Micro, noted that this new offering provides partners with cash preservation, predictable expenses and no lock-in to a hardware lifecycle. Hoffman also pointed out that it provides customers with flexibility and a monthly fee for hardware.
For channel partners who don't tune in to financing offers from their vendor or distributor partners until they have a customer in dire straits, industry experts suggest they make financing part and parcel of the sales pitch.
"We know from research that when partners include financing in the proposal, the win rate goes up, the ongoing client relationship improves and a more complete solution is sold," said Higgins.