Even though many solution providers these days are focusing more on services and less on product, they still need the occasional influx of capital to seal a client deal.
Todd Plambeck, vice president of technology at Bedroc, a solution provider based in Franklin, Tenn., said his business is mostly self-funded and generally doesn't need to secure financing from third parties. But there are exceptions, and in those cases he's been able to lean on a trusted partner.
"We generally didn’t have to go to the bank to get bigger channel funding to support our business until recently because we needed to hire about 30 people in 30 days for a particular project," Plambeck said. "So we work with GE Capital, and they're great. They do what they say they're going to do, and they extend our credit when we need it."
Plambeck said Bedroc chose GE Capital as a financing partner because, unlike a bank, they understand the channel and the solution provider business. "They do know about our industry and that’s helped out a lot," he said. "We see banks trying to get our business but they are new to this business and don't understand it the same way."
While distributors have been a major source of financing for years, the rebirth of capital in the channel also can be attributed to other players that have taken a growing interest in the solution provider business model such as GE Capital and Wells Fargo.
For example, Dell recently partnered with both GE Capital and Wells Fargo to increase its interest-free financing period from 30 days to 60 days.
Robert Wagner, managing director of business development for Wells Fargo's Supply Chain Finance Group, said the organization is involved in $15.5 billion worth of transactions in the channel annually.
"Five or six years ago, it was an interesting time because there wasn't a lot of financing options and there were a lot of companies that were struggling to stay afloat," Wagner said. "There aren't a lot of banks that do this. It's a small universe. Vendors don't typically want to deal with 10 or 12 different financing partners, and other banks and financial services firm don't really know the channel."
Wagner said Wells Fargo is definitely seeing the move to services and recurring revenue models in the channel. "The mix we see right now is about 60-40 product to services, and it's trending down for product revenue," he said.
Wagner said Wells Fargo also is seeing growing interest from other vendors besides its current partners like Dell, Cisco Systems and Hewlett-Pakard, and that additional partnerships are in the work. "We're covering the market from top to bottom," Wagner said.
The 60-day interest-free financing option is becoming more common today, according to vendors. During a roundtable discussion of channel chiefs with CRN editors earlier this month, Edison Peres, senior vice president of worldwide channels at Cisco Systems, said the extension to 60 days is valuable not because solution providers don't have money but because they want to use that available cash to grow the business.
"Most of the time that cash flow is what they're using to invest back into the business, so it's less because they're trying to survive," Peres said. "If I'm a VAR, now I have 30 days worth of cash flow that I can invest back in the business. And that's what we try to stimulate."