Leasing: Are SMB VARs Missing Out?

The missing ingredient is leasing, which accounts for less than 1 percent of all financed orders through Tech Data, the Clearwater, Fla.-based company told CRN last year.

Leasing is a multibillion dollar opportunity that solution providers leave on the table, while direct vendors such as Dell and Hewlett-Packard cash in, according to channel financing executives.

The problem is that leasing is misunderstood by both resellers and end users, the executives said. Vendors and distributors are hoping to remedy it through education and a series of new programs designed to entice more activity.

"A lot of it is providing [resellers] with the training that they need to bring proposals out to their customers," said Greg Hansen, senior financial services manager at Tech Data. "I think most resellers out there will use leasing on occasion, and a small percentage is going to present it as a normal part of their proposal."

Leasing should grow in popularity because it meets end-users' needs, he said. "They want to pay everything on one invoice—that's where leasing comes in and does it for them. It's a way that they can manage the assets in their company more efficiently," he said.

Leasing is already commonplace with several direct vendors. For their most recently completed fiscal years, Hewlett-Packard touted more than $4.1 billion in financing revenue, while Dell reported $6 billion.

For Tech Data, as well as other distributors and vendors, the next step is spreading the word that leasing makes sense for many solution providers and end users.

Ingram Micro and Cisco Systems Capital are expected to announce this week the Cisco Express Leasing program in which the distributor will serve as a middleman for solution providers looking to lease Cisco Systems solutions to SMB customers.

Cisco Capital has extended its zero percent progress payments promotion through July 28, 2007, to Ingram Micro Cisco-certified partners on deals of $50,000 or more. Resellers will receive payments on a negotiated schedule based on deployment milestones while end users begin making payments once deployment is complete. During the initial 120-day period, Cisco will not assess finance charges. Resellers must hold the Cisco IP Communications Specialization in order to participate.

"It allows us now to really scale this thing and reach smaller resellers that we are not able to reach directly. Now they can get the one-stop shop through Ingram," said Maryann Von Seggern, director of worldwide channel development at Cisco Capital.

Bill Bickerton, senior operations manager for Ingram Micro Financial Services, Santa Ana, Calif., said the distributor plans to spend significant resources over the next two years educating VARs on leasing, and teaching them to educate their end users. "We have a wide range of [financing] partners that will accommodate any program," he said.

Several VARs that have used leasing solutions said the key is to identify what is in the best interest of the customer and to squelch any financing fallacies. For example, 90 percent of all copier solutions have been leased, according to Dave Gilden, COO of Tampa, Fla.-based Acuity Solutions, but he has encountered a customer base that is very reticent about financing for IT products. "When people hear leasing, they immediately think they're going to pay more for it," he said. In reality, "for the small-business end user, it's pure cash flow and potentially a lower cost of ownership."

Lack of capital also is one of the largest factors that led some resellers to leasing in the first place. Gary Black, president of RGB Network Services, Sturgis, Mich., said, "What made us start to get involved is with particular customers, they did not have the instant money to lay out up front."

Matt Briggs, director of sales at Single Path, a Crestwood, Ill.-based solution provider, said, "You don't get value by owning the technology, where you get the value from is by using the asset. We're trying to explain to customers that technology is evolving so quickly, you don't want to acquire it right now," he said.

John Paget, North American president and COO of Synnex, the Fremont, Calif.-based distributor, readily acknowledges that leasing is an opportunity to offer significant benefits to resellers. Leasing allows resellers to collect payments faster than cash deals and offers the reseller the chance to have a "stickier" relationship with the customer, he said. It also can make for bigger deals. "We had a reseller that was able to do a lease that was actually larger than his annual book of business," Paget said.

RGB's Black said solution providers' sales forces haven't learned to sell leasing. "Leasing companies need to talk to [the VARs'] salespeople instead of talking to the [VARs'] president, owner or CFO," he said. "My sales force is guilty; they don't mention leasing to the customer. As high as 75 percent don't mention it."

For D&H Distributing, Harrisburg, Pa., educating VARs has been a key to building its leasing programs. "Your typical VAR doesn't have a lot of experience with leasing and how it can be used," said Joe Chaudoin, director of credit and financial services at D&H.

MasterIT, a solution provider and Ingram partner in Bartlett, Tenn., subscribes to the idea that most VARs are technical-, not finance-minded. CEO J. Michael Drake said the company has seen success with its hardware-as-a-service "methodology of funding" with 63 percent of its small-business customers on board. Selling the idea comes down to three things, Drake said. "They don't have a trusted partner, so they need to align [with one]; they have to drive that culture and have to force the salespeople to use it; and make it a part of day to day activities," he said. "VARs are pretty good at putting together quotes," he added. "There would be no way I would participate in this industry if the funding mechanism wasn't an integral part of our business."