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Be Proactive, Communicate
Solution providers that have not yet been hit by reduced credit capacity should still plan for that scenario, said channel executives. Even distributors, long considered the primary financing arm for many solution providers, are now more cautious with their credit lines. Although D&H Distributing Co. Inc. recently increased the credit lines to about 4,000 VARs by a total of $38 million, distributors can be just as tight as any other financial lender.
At Tech Data, "We're making sure we've got more eyes on particular accounts than what we do normally," said Joe Quaglia, senior vice president of U.S. marketing.
Tech Data, Clearwater, Fla., has an executive committee to review large credit deals, but smaller purchases are also being watched more closely, he said. "There's a policy of workflow that we go through to ensure they're credit-worthy and ensure their customers' credit-worthiness. They may be a longstanding customer of ours, but if those relationships [with end users] are new we want to know that," Quaglia said.
To guard against a surprise credit line reduction, solution providers should more proactively communicate with their lenders, said David Johnson, vice president and co-owner of The Fulcrum Group, a Keller, Texas-based solution provider.
"We've spent a lot of time and effort to make sure our lines of credit with [companies] like Ingram Micro, Comstor, Dell and HP are good. We meet with the bank regularly, provide them with financials, let them know where we're going with our business," Johnson said. Financing is no longer a "no-brainer" when a sales opportunity is won, said Jeff Albright, founder of Albright Consulting Services, Evansville, Ind.
"The only challenge for us was to engage [IBM Global Financing] soon enough and to make sure what we did dovetailed into the technology plan the client had in place. The landscape changed dramatically and quickly. I equate it to nobody wants to be the last guy standing without a chair," Albright said.
Albright said his company typically wins a small number of very large deals each year, a model that will be challenged as credit lines shrink.
"This effectively puts the kibosh on us doing big deals. I don't know what we'll do if we come up with another $1 million opportunity," Albright said. "It was quite shocking. The whole plan from IBM Global Financing was to be in the SMB market. Yet they're killing the very guys that have access to those kinds of clients."
As the credit availability for the channel from the big, traditional lenders becomes more restrictive, more solution providers are turning to smaller, alternative funding sources to ensure that customers can finance their IT purchases.
In many cases, lesser-known lenders can be more nimble and provide value that larger players cannot, solution providers said. Companies like Direct Capital Corp., Tygris Vendor Finance and Falcon Leasing are actively looking for VARs' business, said executives at those companies.
Finding a reliable financing company that understands the channel is more important than ever, VARs said, and those lenders are finding unique ways to attract solution providers. Direct Capital, for example, will pass leads on to VARs in order to finance the deals.
Tim Howard, president of RMON Networks, a Danville, N.H.-based solution provider, said he has received six to eight leads from Direct Capital since the program was launched late last year.
"It's a lukewarm-to-cold lead, but, hey, that's great. No one else is doing that. We'll take them all, especially in this environment," Howard said.
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