ARLINGTON, Va. -- Hot technologies may be glitzy, but the niceties of credit and financing are more important to a VAR's business. Especially now.
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The availability of credit to IT solution providers and their customers has not been notably constrained in the overall credit crunch, according to attendees of Tech Data Corp.'s TechEDG Conference in Virginia this week. But too few VARs are taking advantage of the options available to them from vendors' credit arms and other providers, according to Tech Data execs.
Scott Tilleson, director of credit for the Clearwater, Fla.-based distributor, said the amount credit available to IT solution providers (and their end users) has not decreased, although some credit players have changed.
But VARs do need to document their business plan to get the money. It definitely doesn't hurt to show potential creditors that the customer is in government, education or healthcare, all areas slated to reap big money from the government's economic stimulus package. If credit flows to customers in those areas, there is a certainty that there will be repayment.
In a session of a hundred or so VARs, fewer than 10% raised their hands when asked if they used third-party credit options. The message from Tech Data and the General Electric Credit exec who was also on hand was: Shame on them.
Some $2 billion in credit flowed through Tech Data last year, 25% of it handled by GE. The rest went through other credit partners--IBM Global Financing, De Lage Landen Financial Services and Castle Pines Capital.
VARs should engage with credit providers even before the need arises. Potential creditors want to know about the pedigree and history of the VAR's owners and operators. They want to see their past history of success or failure.
Attendee Jeff Wilke, CEO of Data Media Solutions, Inc., an Omaha-based VAR, backed up that contention. Wilke said his business has more than tripled in the three years since the company started tapping third-party credit, most notably GE..
He understands why smaller VARs hesitate to go that route, however.
"The reason such a high percentage of small businesses fail is they're undercapitalized. When you're a small business person, everyone wants your financial statements. Well, if you're keeping the company alive by not paying yourself a salary, you don't want to show that to the banks….after four or five years, when you do have a revenue stream, they still ask for the financials going back three years which tend to be bad. Still you've got to show them you're heading in the right direction."
The bottom line, Wilke said, is that while it's understandable that small VARs don't want to open up to lenders, they have to trust credit institutions if they want to grow.
Tilleson said it's imperative to keep the credit community informed of your status, even if everything isn't going swimmingly. "I hired people, they were bad. I fired them. Make sure they know,. The more info the better," he said. Credit companies want to know corrective or preventive action is being taken.
The composition of credit providers shifted sinceTextron Financial left the IT financing field a few months ago. But other providers like Castle Pines have stepped up their activity to fill the void.
Some of the credit terms of late are outstanding. Hewlett-Packard Co., for example, offers zero percent financing for 365 days, "same as cash" deals. Pretty hard to beat. The downside is that to get those terms, VARs have to do the paperwork and document their plans.
Many of the 200 or so VAR attendees at the show are already in government or education work.
Broadline distributors Tech Data and Ingram Micro Inc. field thousands of hardware, software and networking products, and the availability of inventory is the reason most VARs have relationships with several distributors. One may have something in stock that others do not, for example, or can ship something sooner, cheaper, etc. But the distributors' ability to facilitate credit is also a huge part of their value add, VARs said.
This report was updated Monday with additional VAR comment.