After several years of painful credit crunches and capital droughts, solution providers today say money is flowing into the channel again.
And perhaps the biggest driver behind the channel financing renaissance is the overall improvement in the financial health of solution providers. Vendors and distributors generally agree that solution providers today are more stable and, better yet, profitable. Part of that has been a shakeout of weaker, unstable solution providers following the economic downturn in 2009, said Scott Tillesen, vice president of credit and customer care for the Americas at Tech Data.
"There's definitely been a maturity increase in the industry when it comes to financials," Tillesen said. "The partners that were able to weather the downturn have come out stronger, so I think the health of the channel has greatly improved in recent years."
[Related: Channel Financing Week]
Financial analyst firm Raymond James recently issued a research brief that showed channel companies (including distributors) outperforming vendors in revenue and earnings per share over the last two quarters. A big driver for that trend, according to the report, is that businesses typically rely on channel partners during "periods of rising complexity" due to new technologies such as cloud, virtualization and mobility.
Another factor is how solution providers are viewed differently today. Erik Bodor, director of information technology at cloud solution provider GSATi in Denton, Texas, said his company ran into challenges in 2009 and 2010 trying to find financing when it wanted to build its own data center for private cloud services. The reason? Financiers were focused on the actual assets and not the company's potentially lucrative services model.
"Nobody would give us a loan for hardware purchases," Bodor said. "The servers were fixed assets that weren't going to appreciate in value, and they weren't interested in our business model."
But now things are different. Frank Vitagliano, vice president of North American channels at Dell, said that while financial metrics are still important, a solution provider's business model takes precedence. "I think what ends up getting looked at [today] is not so much the asset, but the business model and what's being driven in the business model," Vitagliano said.
Not only is there more money available and more interest in solution provider business models, but the options and quality level also have increased.
David Ruchman, chief technology officer at Powersolution.com in Ho-Ho-Kus, N.J., has noticed a big difference in the amount of money available to channel partners such as Powersolution.com. Five years ago, one of the company’s top distributors unexpectedly cut Powersolution.com's credit line -- not because the solution provider was in financial trouble, he said, but because the distributor reduced its available credit across the board.
"We saw a big pullback from financing in 2009," Ruchman said. "We had our credit line dropped by one of our top distributors, which made things difficult."
But today, things are much better. While Powersolution.com offers cloud and managed services, it continues to provide servers, PCs and network appliances to its clients. Virtually all of the products are sourced through distributors, primarily Tech Data, which Ruchman said offers favorable credit terms and financing options.
"We're trying to push our clients to get into the cloud, but we still sell a lot of hardware and we're not going to leave that money on the table," Ruchman said. "Financing is a lot better today. It's not going to be like it was 15 years ago when vendors and distributors were literally handing out thousands of dollars just for signing up for a financing offer. But it's a lot better."
Vendors and distributors say more solution providers are taking advantage of financing today. For example, Lenovo recently said the number of resellers using the vendor's 60-day interest-free financing jumped a whopping 40 percent year over year during the company's most recent quarter.
There also are different financing options and services available today. Those options include utility financing with consumption-based billing in public, private and subscription-based cloud services, and partnerships with vendors in various risk management strategies (which are typically under NDA with the vendor) that result in more credit being available to a solution provider for pre-funded leases (or funding prior to acceptance by the end-user customer).
Bob Stegner, senior vice president of marketing at Synnex, said alternative financing has become a competitive differentiator and that more solution providers are participating in the new offerings. "We typically have $500 million in credit available for active customers," Stegner said. "Alternative financing options, excluding floor-planning, has contributed more than $300 million in sales over the last 12 months. So alternative financing definitely has teeth in the channel."