Vendors and distributors are entering the lending game as interest rates at commercial lenders rise and banks remain reluctant to consider software and services capital expenses.
Tech Data, a distributor of microcomputer-related hardware and software products to VARs and retailers, is putting more money into its small and midsize business channel with a new leasing program backed by IBM Global Financing.
The IBM partnership allows VARs to give customers access to more liquid cash through Tech Datas Credit Services division without affecting their Tech Data credit lines.
The Tech Data-IGF deal demonstrates a broader trend, with vendors and distributors entering the lending game as interest rates at commercial lenders rise and banks remain reluctant to consider software and services capital expenses, finance officials at IBM and Microsoft told eWEEK.
The offering, initially open only on IBM orders, will cover all Tech Data orders by Oct. 1 and may include hardware, software and services.
Tech Data, of Clearwater, Fla., will provide dedicated resources to support the IGF partnership, including an automated credit assessment process to approve application submissions within an hour and electronically deliver financing quotes and proposals; a streamlined, two-page leasing contract; and an online payment calculator to help resellers quickly develop proposals.
Putting cash in customers hands can be as important to the SMB channel as the solution itself, IBM, Tech Data and VARs said.
"Financial versatility is the key," said Mike Zava, Tech Datas senior vice president of Credit and Customer Services, in a statement. "In the SMB market especially, resellers often find themselves running against credit limits and shying away from larger, business-building opportunities. By leveraging all the financing tools available to them through Tech Data, our customers do not have to scramble to find the purchasing power they need to close deals and grow their businesses."
One VAR agreed: "Our growth throughout the years has had as much to do with quickly finding adequate financing as it has with being able to provide our customers with the products, solutions and expertise they require," said Dave Gilden, chief operating officer of Acuity Solutions, in Tampa, Fla.
Financing is commonplace among hardware vendors, with loans accounting for approximately 25 percent of enterprise IT hardware spending annually, according to Microsoft. But financiers have been wary of lending for software buys (roughly 3 percent of the spending), as "there is nothing to repossess," said Brian Madison, general manager of Microsoft Financing, the software makers lending arm, in Redmond, Wash. Distributors and vendors are in a position to fill that void, he said.
Microsoft Financing lent $500 million to 5,000 customers in 2005, its first full year of operation, and in July announced plans at its Worldwide Partner Conference in Boston to lend "billions" to drive adoption of its Windows Vista, Office 2007 and other software products debuting this year and next. IGF announced in March that it intended to lend $3.4 billion to IBM customers, up 26 percent from 2.7 billion in 2005 and 41 percent since 2.4 billion 2004.
By enabling customers to pay for more of what theyre buying instead of cutting deals, financing helps VARs, vendors and distributors stave off margin shrinkage, said John Callies, general manager of IGF, in Armonk, N.Y.
One hundred percent of Microsoft Financing customers surveyed told the software maker they "bought more as the result of financing being available
they purchased sooner, and they bought more services," Madison said.
The offer can also be an attractive sales tool and part of the resellers all-in-one, turnkey approach to the solution, Zava said.
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