A crippling credit crunch is hindering small and midsize solution providers trying to grow their businesses, say executives.
Solution providers are feeling pressure to find alternative forms of financing, such as leasing or end-user billing, as traditional distribution and vendor sources dwindle.
Distributor consolidation has eliminated hundreds of millions of dollars in credit to solution providers this year, say sources. The surviving distributors are trying to alleviate the financial strain through leasing and other services, but in some cases it is too late, say solution providers.
"I've been in a position where I had huge projects and nowhere to price them," says Marie Graziano, CEO of Computer Consulting Services, Carrollton, Texas. "I had to source it to three suppliers," she says. "One, because I couldn't find product, but also because I didn't have that much credit with one distributor. I'm not that big. And I had to carry about $175,000 [in credit] for almost two months."
Cash-flow difficulty is the No. 1 reason small solution providers fail, says Lino Martin, U.S. treasurer at distributor Ingram Micro and general manager of Ingram Financial Services. To help, distributors offer leasing and end-user billing programs that reduce a solution provider's risk, Martin says.
The number of leased orders has increased by 100 percent this year at Tech Data, says Mike Zava, vice president of U.S. credit services at the distributor. "It's just a matter of education and them figuring out how to use those services," he says.
Solution providers are uncomfortable with leasing, though it can prove profitable, says John Dobson, vice president and chief marketing officer at Transamerica Distribution Finance, Hoffman Estates, Ill., and chairman of CompTIA.
The bankruptcy, or near-bankruptcy in some cases, of distributors handling credit from IBM Global Financing has resulted in a $600 million reduction in credit available to solution providers, sources say.
IBM Global Financing executives dispute the figure and say the company's assets have increased by an unspecified double-digit percentage from a year ago.
But consolidation has unsettled some accounts, says Phil Morse, director of Americas commercial and specialty financing at IBM Global Financing.
"As some of these distributors have exited, those [solution providers] buying on open account terms have had to look for alternative financing services," Morse says. "It's not an overnight process. It takes a little time shifting from one source to another source."