The IT financing game has changed a lot over the years. The risks are greater as solution providers have moved from providing PCs to complex business solutions and now cloud services. But so are the rewards.
It's no longer about "dealer floor plan" financing of hard goods such as PCs. The IT financing game, in fact, has moved from a variable-based on-premise IT product model to a fixed-cost, annuity services model. It requires a major technology and business model makeover that has solution providers acting as the central nervous system of American businesses. In the banking business, there's an old maxim that "change requires capital."
That's why it's heartening to see GE Capital, with 30 years of experience in commercial distribution IT financing, stepping up with working capital financing solutions for vendors, distributors and solution providers in the cloud services era.
[Related: GE Capital Boosts Channel Financing (Video)]
As part of its push, GE Capital has connected solution providers with its leasing arm, opening the door for them to get the much-needed financing to build data centers to host cloud services. Given the intensely competitive nature of the cloud marketplace, that kind of financing is an amazing vote of confidence in the channel.
"I think this is probably one of the most exciting times to be a channel partner," said GE Capital Managing Director Michael Marcolina, who has been in the IT services financing business for 25 years and has watched solution providers tackle business and technology challenges time and time again. "It's a great place to be because companies are looking for independent voices that can assess, inform and educate them on technology choices. That is where the channel has huge value."
It also speaks volumes about the state of the market that GE Capital financed $12 billion in the IT commercial distribution finance segment in 2012, an 11 percent jump from $10.8 billion in 2011. What's more, its credit line commitments hit $3 billion in 2012, up 20 percent from $2.5 billion in 2009.
Through its financing arm, GE Capital now touches 40 percent of CRN's Solution Provider 500, in addition to 1,400 resellers and 250 vendor OEMs or distributors. Its customer base is a who's who of the channel. But it's still only a drop in the bucket when you look at the need for financing among SMB solution providers, which are always looking for support from vendors, distributors and financial firms.
GE Capital, for its part, estimates that the inventory extended finance terms it offers to solution providers versus a typical open account equates to a whopping 21 percent impact on profitability. Think about that. Like a consumer with a great home mortgage, it makes all the difference in the world. It's particularly crucial for the next generation of cloud services startups, which often are financing their businesses with home equity or loans from family or friends.
"They start small and grow fast," said Marcolina, noting the remarkable entrepreneurial spirit of the solution provider channel. GE Capital has seen more than a few startups—and even established solution providers—through difficult times. That's good news for the entire channel ecosystem.
BackTalk: Steve Burke writes a monthly opinion column on CRN.com. You can reach him via email at firstname.lastname@example.org.
PUBLISHED MARCH 11, 2013