As the economy falters, vendors are launching creative IT financing options to battle shrinking customer spending and accelerate pending deals.
Avaya Inc. and Microsoft Corp. recently launched 0% IT financing options, and Oracle Corp. is promoting no-money-down deals and flexible payment schedules good until the end of this month.
"In the past six months … when a solution is taken to the CFO, they say we might have had the budget for this, but we have to manage our cash. We have to hold off for now," explained Eric May, Avaya's sales director. He added that "0% financing is an excellent way to show a customer how to manage and retain cash."
Microsoft's 0% financing promotion covers only its Dynamics ERP and CRM applications and a year of maintenance in 12 markets worldwide for 36 months. Customers must spend between $20,000 and $1 million to take advantage of the special financing. Additional third-party software, related hardware and partner services can be financed at standard (higher than 0%) rates.
"We expect more 0% credit deals. It's just the math. They incent people to do a deal now versus later," said John Paget, global president of Avnet Technology Solutions. "It's a very good move for vendors."
Customers request creative IT financing options
"Some of the feedback we started to hear from customers was, 'Anything you can do around financing would be great,'" said Gayle Hoshino, general manager of Microsoft Business Solutions (MBS) pricing. "This helps customers take an edge off." Many customers can get funding for implementation, but they need help with the services, she said.
But even more important than offsetting costs is the need for credit when it's not otherwise available.
"In the past, we would propose financing through Avaya, and maybe 25% would take advantage because they had their own banking solutions," May said. "We suspect this will grow to 30% to 50%"
Cisco Systems Inc. has seen customer requests for financing increase 70% over last year, including loans and leasing options, according to Maryann Von Seggern, director of Cisco Capital.
"Banks started to change their behavior about a year and a half ago," she said.
But Von Seggern said that Cisco has not altered lending practices and will remain stringent on credit review. Loosening rules for customers would only lead to disaster, she said. In fact, there were losses on 20% of equipment loans (including computer-related equipment) in September, according to numbers released by the Equipment Leasing and Finance Association and reported in The Wall Street Journal.
Still, for partners meeting its standards, Cisco often runs promotional financing campaigns. They're not necessarily related to the economy, but they're used to promote products, Von Seggern said. There's now a 0% financing offer on the Unified Communications (UC) 500 solution for small and medium-sized businesses (SMBs) and a "zero-percent progress" promotion for companies upgrading UC solutions. In that financing method, partners get paid on the deal during the upgrade implementation, and the customer is not charged interest during installation. Cisco is offering several other creative financing promotions, and more will be launched throughout the year.
Oracle's promotion was more of a last-minute push to kick second-quarter sales into gear. An email sent to partners detailing the promotion read, "As Q2 winds down, uncertain market conditions are prompting customers to take a hard look at their budgets and IT procurement decisions." The email went on to tell partners they can address increased requests for discounts or postponements of purchase with Oracle's new flexible payment plan.
In another recent creative IT financing deal, Lenovo and Synnex Corp. are collaborating on a no-risk way for solution providers and their customers to try out new Lenovo servers for 60 days.
At the end of the day, promotions are as much for the vendors' books and to promote underperforming products as they are to help customers, observers noted. That said, they are almost never bad for partners.
"From a partner perspective, this adds a layer of safety to their income," May said. "They get all the money and they are paid up front."
Also, vendor loans take some of the burden off partners.
"They love it because they don't have to spend their time doing collection duty," Hoshino said.
Ultimately, even for customers that don't meet stringent requirements, offering creative technology financing is a way of showing them that vendors and partners feels their pain.
"This is as much a show of goodwill and caring about the plight of the customers as anything," said Mike Gillis, managing vice president of Hitachi Consulting, a Microsoft Dynamics reseller in Dallas. "Last time there was an offer like this [in 2006], we had the most remarkable spurt of sales."
Avaya's promotion lasts until March 31. Microsoft has not released an end-date.
Senior news editor Barbara Darrow contributed to this report.