Working Capital

Exclusive CRN research shows that nearly two-thirds of solution providers surveyed offer their customers various financing or leasing options for their IT purchases. However, only a small percentage of customers ever take advantage of these options. A number of vendors, distributors and solution providers, however, are attempting to boost that number as a way to better meet customer needs.

Sage Software, Irvine, Calif., has created a more flexible leasing program and Microsoft, Redmond, Wash., in March lowered the minimum size of the deals it will finance for small-business customers.

D&H Distributing, Harrisburg, Pa., is encouraging leasing solutions to help free up solution providers' credit lines for other needs and maintain more long-term loyalty from customers.

And solution provider Forsythe Technology, Skokie, Ill., launched a leasing-focused Web site, which includes a "Fast Quote" section that allows potential customers to receive a customized quote within 24 hours. When launched, Forsythe Chairman Rick Forsythe said the aim was to try to simplify the leasing process and encourage more customers to get on board.

Forsythe Senior Vice President of Financial Services John Carcone is betting the move will pay off. "There's a higher cost of capital now that interest rates are heading upward," said Carcone. "That's usually good for the leasing business."

Why Finance?
CRN's survey of solution providers found that most customers who seek leasing or financing for their IT purchases do so because of cash flow concerns or to reduce the cost or risk of ownership. Other reasons include optimizing life-cycle management and better management of IT asset tracking.

Cash flow issues definitely are pushing small-business customers toward leasing options, said Taviz Patterson, CEO of Taz Networks. The Brighton, Mich., Microsoft Business Solutions partner, which targets customers with 10 to 150 systems, has already begun taking advantage of Microsoft's move to drop the minimum deal size it will finance to $3,000 from $10,000. Taz landed at least one deal it probably wouldn't have if not for the new terms, said Patterson. "It's a bundled package of server, maintenance and service for three years," he said. "We get paid up front and the customer has a monthly bill with Microsoft. It works out really good."

Taz does about $1 million a year in annual revenue, said Patterson, and up to 20 percent of that business is financed, mostly through Microsoft. Microsoft is its obvious choice for a financing partner, he said, since 90 percent of Taz's business is in solutions involving Microsoft Small Business Server.

The growing adoption of the managed services model is also helping promote financing, Patterson said, since customers are getting used to a monthly fee for a service rather than plopping down cash for a purchase. "It works really well for us, too," he said, "because we don't have to worry about that up-and-down revenue cycle."

Strategic Investments
Core Technologies, Omaha, Neb., sees leasing and financing as greasing the wheels of its transition to a more services-oriented model and getting customers to look at their IT spending as a strategic investment.

President Chris Vilim said the company currently finances 20 percent to 25 percent of its deals, usually with 30- to 36-month leases. And it's on the rise.

"We do see, and have seen over the last two years, an increase in the number of leases we write for our clients," said Vilim. "We will also include a certain aspect of managed services as part of the proposal. It's helping to ease clients into the idea of a monthly arrangement."

Powersolution.com, a small HoHoKus, N.J.-based solution provider that does a lot of Web application development work and has a growing MSP business, has worked closely with GE Capital for more than 10 years to create a leasing or financing message around almost every bid of more than $2,000, said CEO David Dadian.

"As long as the client is approved for credit, we write the deal," Dadian said.

Decisive Business Solutions, a $9 million VAR in Pennsauken, N.J., presents leasing as an option to all its potential customers, said Pete Busam, COO. He said midsize customers are especially receptive because many are expanding faster than their capital budgets will allow them to invest in IT resources.

"If I come in and tell you a monthly payment, you're more likely to buy something," said Busam.

Where's The Growth?
But for all the potential benefits, the growth of financing and leasing isn't by any means ensured.

The CRN survey found that only 22 percent of respondents expect 50 percent or more of their customers to use financing or leasing options in the next 12 months. At the same time, 30 percent of respondents expect less than 10 percent to do so.

REAC, a small VAR in Minneapolis, has established relationships with Ingram Micro and a local financial services company and has even created a flyer for prospects headlined "Strapped for Cash?" to try to drum up interest. Yet, there just aren't many takers, said Bob Walensky, REAC president and CEO. "We don't get more than one or two customers a year that go for leasing," he said.

Other solution providers, especially those serving SMBs, notice that many companies aren't refreshing their IT systems as fast as they used to, so they may not be as likely to take on a 30- or 36-month lease. "Small businesses try to get as much out of technology as they can," said Core Technologies' Vilim.

Still others say their avoidance of financing is due to their own experience. AH Computers, Winter Park, Fla., got burned a couple of years ago on a hardware leasing deal, said Scott Mansfield, senior technician. After AH had installed the hardware for a local glass company, the company wouldn't sign off on the lease until AH also installed the software. "We had to do the software part of the job, which we weren't contracted to do, in order to get our money," said Mansfield. "Needless to say, we won't do that again."

But for those solution providers offering financing, said Forsythe's Carcone, flexibility is key. "We work with customers throughout the term of the lease to make sure they're meeting their business goals."

HEATHER CLANCY contributed to this story.