VARs Scramble For Credit Sources As Textron, IBM Cancel Programs3:45 PM EST Fri. Feb. 06, 2009
The number of credit programs available to solution providers is getting smaller and the search for financing for projects is becoming more of a challenge, according to solution providers.
Just in the last two months, managers of at least three channel financing programs for VARs said they were closing or making their terms stricter due to the weakening economy.
As a result, many solution providers are scrambling to find alternative sources of financing for their customers' IT purchases at a time when traditional sources of credit are drying up.
First, IBM closed its Flexible Credit program, which had been geared toward smaller businesses and offered quick approvals. The IBM Flexible Credit program did not meet the business objectives set for the program, according to a spokesperson for IBM Global Financing.
"Late last year, we advised business partners that we would be discontinuing the program and that they should switch to our business-as-usual inventory financing offerings. This has been a smooth process, and we are happy to offer high-value financing capabilities to our clients," the spokesperson said.
IBM also limited a leasing program that previously was open to any technology products to just IBM and Lenovo products, along with a couple of supporting vendors.
The IGF spokesperson said it shouldn't be surprising that IBM would be deferential to clients and business partners that want to fund IBM equipment, software and services. "It's no secret that liquidity has tightened in the marketplace and funds are scarce," the spokesperson said.
IBM still has plenty of credit programs for small solution providers, all the way to billion-dollar businesses, said the spokesperson.
"We are a part of a larger brand and our mission is to help clients leverage the very best financing offerings, including flexible leases and loans, to access IBM best-in-class technology solutions and those of our vendor partners (Lenovo, InfoPrint, Juniper, APC, Motorola and Barco). We will still fund other OEM technology that is part of a greater IBM solution," he said.
But the changes are still troubling to some solution providers. Jeff Albright, founder of Albright Consulting Services, Evansville, Ind., had used the IBM Flexible Credit program to supplement a terms account he has with Arrow Electronics.
The solution provider said his business typically involves a small number of very large deals each year. "This effectively puts the kibosh on us doing big deals. I don't know what we'll do if we come up with another $1 million opportunity," Albright said. "It was quite shocking. The whole plan from IBM Global Financing was to be in the SMB market. Yet they're killing the very guys that have access to those kinds of clients."
Next: Some See Competitive Advantage With Tightening Credit
Other IBM partners think the moves could benefit them because VARs selling competing platforms now have to seek alternative credit suppliers.
"The entire mission of IGF is to facilitate the movement of IBM products to market. And in this economy, with the money that's available, it makes sense IGF does that. Their mission is to sell IBM products, not be a bank," said David Stone, vice president of business development at Solutions-II, Littleton, Colo. "This should be a great thing for IBM resellers. If we get the funding, we can sell more products. IBM is trying to drive loyalty with its resellers. They, like everybody else, are adjusting their programs to drive loyalty."
Meanwhile, Textron's board of directors approved a plan on Dec. 22 to exit all of Textron Financial Corp.'s finance business except for financing of customer purchases of Textron-manufactured products, resulting in the loss of credit lines of many solution providers.
Several distributors, including Ingram Micro and Arrow Electronics, partnered with Textron to provide financing to solution providers. Textron executives could not be reached for comment.
George Usi, president of Sacramento Technology Group, Folsom, Calif., used to finance nearly 100 percent of his sales through Textron, especially in the public sector market. Last month, he got a certified letter saying his credit was being discontinued at the end of February.
Usi quickly scrambled to secure two lines of credit with De Lage Landen Financial and GE to replace the Textron line. He was able to match the line he had with Textron, but he fears other solution providers will end up with less credit than their Textron lines due to the economic crisis. "We've [diversified] our business model. We do quite a bit of managed services. In my opinion, that helped when we were going through the financial review process," Usi said.
Usi also fears that new companies will face additional hurdles to secure credit in the current environment.
"They don't have the relationships, the history. It'll be tough for them to enter the market. This is going to stymie innovation. There were will fewer entrepreneurs, less competition," he said.
Arrow executives declined to comment on Textron, but the company issued a statement that said it was working with Textron and its resellers to support them through a transition period.
"Given Arrow's extensive portfolio of commercial financing programs and our diversified base of more than 700 suppliers and 140,000 customers worldwide, Arrow ECS was able to quickly transition our resellers that previously were engaged with Textron to our other commercial financing suppliers," the company said in the statement.
Ingram Micro's Kelly Carter, director of credit, said the distributor was helping Textron borrowers secure alternative lending sources and, in some cases, increase their Ingram Micro credit lines. "We've been very proactive on this front from the get-go and are working with partners as we speak to keep their businesses running as smooth as possible," Carter said in a statement.
Tech Data did not have a formal relationship with Textron, but the Clearwater, Fla.-based distributor still faces the challenge of trying to help VARs replace disappearing credit lines, said Scott Tillesen, director of SMB credit at Tech Data. "We're sensitive to the fact that these guys leaving creates a little bit of a void," Tillesen said.
Next: Tech Data Will Unveil Two New Financing Partners
On Monday, Tech Data plans to detail two new financing relationships with Castle Pines Capital, which has an affiliation with Wells Fargo, and CIT Technology Financing Services.
"People who have been in IBM or Textron flooring have alternatives. Castle Pines is a full-service flooring company. We got notified just today that we had 11 resellers move from Textron to Castle Pines," Tillesen said. "CIT is a very aggressive and well-known end-user leasing entity with programs that really support us. They're willing to support software purchases, which in the leasing world is not that common, and managed services contracts, which is very important to us."
Manufacturers are also trying to help VARs with credit issues, Tillesen said. Cisco Systems, Fujitsu, Kaspersky, Fortinet, Hewlett-Packard, Lexmark, Lucent, SonicWall, Sony and VMware are companies now offering 60-day terms, according to Tech Data.
Of course, getting credit for a VAR is only half the battle. Securing credit for customers is also getting tricky, solution providers said. A couple months ago, Albright had a customer turned down instantly by IBM on a leasing opportunity.
"They probably didn't have the greatest credit in the world, but we do a lot of business with them and they've always paid us on time. It was a real struggle trying to get them some financing," he said.
The customer ended up drawing down on a bank line of credit "at an outrageous rate," Albright said.
Financing used to be a "no-brainer" when a sales opportunity was won, Albright said. Where conversations once focused solely on sales and designing solutions, financing is now a key component as well.
"The only challenge for a VAR was to engage IGF soon enough and to make sure what we did dovetailed into the technology plan the client had in place. The landscape changed dramatically and quickly. I equate it to nobody wants to be the last guy standing without a chair," Albright said. "And I don't see an end in sight. It sounds like we're talking about a different country, doesn't it?"
Joseph F. Kovar contributed to this article.