IBM To Pump $1 Billion In Credit Into The Channel

Under the IBM Flexible Credit program slated to launch Friday, IBM Global Financing (IGF) will offer solution providers credit lines of at least $100,000 and flexible payment plans with near immediate approval. The program is designed to help small solution providers improve their cash flow.

IBM aims to lend $1 billion within three years under the program, said Ron Bachner, business development executive at IGF.

"Obviously, that's providing an additional major piece of working capital into the channel. It's designed for basic resellers, software guys, even consumer electronics," Bachner said. "This is a scale program. It works with 500 customers, but it really works with several thousand on the portfolio."

Initially, the program will be available through Tech Data, but IGF plans to run it with other distributors in early 2007, Bachner said.

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"We've been chatting with a number of suppliers, but Tech Data has been providing us with good input on small customer requirements. We felt it was only right give Tech Data the first pass to promote the program," he said.

The quick application and approval process should be especially enticing to VARs that have been reluctant to use third-party financing in the past, said Mike Zava, senior vice president of credit and customer services at Tech Data, Clearwater, Fla.

"It uses an electronic signature. That enablement is a fantastic leap forward. Picture yourself as a reseller. In the past, the application could take hours to fill out. There's nothing else like it," Zava said.

Added Greg Hansen, senior credit manager at Tech Data, "Finally, financing is catching up with technology. The other neat thing is the lines are unsecured credit. A personal guarantee is not required. [A reseller's] finances are not required," he said.

VARs will retain their normal credit lines with Tech Data, which usually are net-30 terms. In the Flexible Credit program, only one-third of the total is required after 30 days. An additional third would be due at 60 days and at 90 days, Hansen said. Interest would accrue after day 30, at a competitive rate that would be determined by the solution provider's credit score, he said.

"They may want to flex out only 15 or 30 days, but the design point is to provide a working capital solution for smaller accounts, especially when they have larger receivables they are trying to collect and not tax their cash flow as bad small accounts have done in the past," Bachner said.

The program has piqued the interest of Tim Kuhlman, CFO at Richards Computer, a $15 million solution provider based in Fairfax, Va., that has never used third-party financing.

"We've looked at other third-party financing options in the past. What was discouraging was the paperwork and turnaround times. The days are seldom long enough as it is," he said.

The major attractions of IBM Flexible Credit are the online application, the quick decision-making, the lack of paperwork and a personal guarantee, and the payment flexibility, Kuhlman said.

"The cash flow for a small or midsize channel member ebbs and flows. It's not always as predictable as one would like. Having this in my back pocket allows me to sleep well at night knowing that a credit line is available," he said. "Like any company, I'd like to do net-30. But from time to time, larger customers are not as sensitive to our cash needs as we'd like them to be. Having that second option is a lot better."