MSPs Can Bank On NCCC’s New Financing Program

A major U.S. bank has designed a financing program built specifically for MSPs.

National City Commercial Capital, Cincinnati, now offers MSPs a way to use their customers’ long-term managed services contracts as collateral for financing purchases such as hardware, said NCCC Vice President Terry Karageorges.

NCCC presented its Managed Services Solutions in March at the MSPAlliance 2006 Managed Services International Conference in Orlando, Fla.

A major hurdle for many solution providers in becoming MSPs is the shift from billing project-based work in one lump sum to longer-term payment plans at a smaller, fixed rate, Karageorges said. For example, if expensive hardware or software has to be added to a customer’s network under the contract conditions, MSPs that have to pay a distributor the cost of those products within a net 90-day time frame may have to eat that cost until the incremental payments from the customer catch up, he said.

“The trend right now is for MSPs to provide products and services in one contract. The problem is the MSP is not getting the money up front to buy the needed equipment from the supplier,” Karageorges said.

Kollet Walty, director of marketing at Heart Technologies, a solution provider in Peoria, Ill., who is just entering the managed services business, was intrigued by NCCC’s offering. “Managed services is where we are going right now,” Walty said. “We see a good idea with [NCCC].”

With Managed Services Solutions, MSPs can get NCCC to finance the cost of hardware and software sales so they can keep in line with a customer’s existing monthly services fee, Karageorges said.

Interest rates and credit lines are based on the customer, not the MSP, he said. If an MSP’s customer is a publicly traded company, its earnings statements are analyzed to determine interest rates of the NCCC services. If the customer is a smaller private company, NCCC looks at the MSP contract and its credit, he said. NCCC invoices the MSP’s customer and performs any necessary collections. It also can private-label invoices to appear as if they are being cut by the MSPs themselves.

MSPs are paid by NCCC after it takes its cut, Karageorges said. NCCC is hardware- and software-independent, meaning it does not tell an MSP how or where to buy products, he said. If an MSP’s customer defaults, NCCC repossesses and resells any products purchased and pays off the debt, he said.

Jim Swoyer, president of Data Device, an MSP in Rolling Meadows, Ill., liked the thinking behind Managed Services Solutions. Data Device has had great success over the past year expanding its MSP offering to more and more small physicians’ offices, and has built an MSP offering for the medical field that is easily replicable at a low cost, Swoyer said. But product purchases like hardware can still be a sticking point for Data Device’s customers. A method to spread out costs, even if it means added interest, would be a good thing, he said.

“Physicians are very price- conscious, and it’s hard for me to tell them, ‘Look, this [hardware] is going to cost you $400,000.’ But if I can tell them it will cost them $4,000 a month, and they can add another [user] for $200 a month, that gives me flexibility, and ultimately, that is where I want to go with my model,” Swoyer said.

Swoyer was not completely sold on NCCC’s particular offering, however. He said Data Device—which does less than $1 million in revenue a year—may be better prepared to add creative financing like Managed Service Solutions once it expands its MSP customer base to where the revenue is so strong that Data Device’s overall MSP business—not the individual credit histories of its customers—becomes the basis of collateral for extended credit.

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