Credit Crunch Hits The Channel

Solution providers say that despite the $700 billion congressional bailout package and the Federal Reserve's half-point rate cut earlier this month, they expect no quick fix to the economic malaise sweeping the nation.

Most worrisome, solution providers say, is that some customers with otherwise strong balance sheets and ready access to capital are growing more cautious in their IT spending as they wait out market turmoil.

As a result, many solution providers are hunkering down for a difficult fourth quarter and formulating strategies to weather what could be a prolonged economic downturn.

"This week alone [first week in October] I've had two deals that the customers would have financed themselves through a bank but they were turned down," said Manuel Villa, president of VIA Technology LLC, a San Antonio solution provider.

"They then had to look for leasing options, but the leasing companies told them they couldn't do the project. Even leasing companies are getting tight with their approval process. That tells me that credit is tight all over."

Villa said that the deals were relatively small, about $20,000 each, but the customers were well-established professional firms that had been in business for more than 10 years.

"If I've got two deals that are put on hold because of lack of capital, there are certainly some other folks that are seeing the same thing right now," he said. "This is a real problem now, but I hope that it is temporary."

Arlin Sorensen, CEO of Heartland Technology Solutions, a solution provider in Harlan, Iowa, said that he had a couple of projects slated for the fourth quarter that have been postponed until next year. "The impact we are seeing is in the midmarket," he said. "The projects are being postponed, not canceled. There is a lot of uncertainty and people are waiting to see what happens."

On the flip side, he said some customers that have budgeted IT projects are racing to complete them by the end of the year because they expect that their budgets will be withheld in 2009. To combat the situation, Sorensen said he's trying to break larger projects into several smaller ones to make them more palatable. And he's staying as close to his customers as possible. "We are staying connected and making sure they understand that technology is an important part of their success and they can't just ignore it."

Next: Liquidity Concerns