Cisco Capital Exec Urging VARs Toward 'New Normal' Of Financing

One of the most frustrating aspects of the current financing climate is that CFOs, despite seeing profits, are neither spending, nor hiring much. And as a result, the business economy has been sluggish, says Maryann Von Seggern, director of worldwide channels development for Cisco Capital, the networking titan's financing arm.

"In many segments of the market, we've seen very large profits," said Von Seggern. "But we haven't seen a huge ramp-up in spending. CFOs are holding on to a lot of their cash.

"Two years ago was a very frightening time for all CFOs, and they're experiencing high profit now because they looked inward and became a lot more efficient and drove their costs down," she added. "But they're not necessarily spending like you might have expected, or hiring the way you might have expected, based on profits."

That's part of what Von Seggern, who met with CRN during Cisco's Partner Velocity conference in Barcelona this week, agreed is the new normal. It's also something solution providers need to understand as they seek to employ financing to close deals of all sizes, she explained.

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At a macro level, U.S. financial institutions are lending again, not at the $750 billion in new loans that happened during the high point of lending in 2007, but in the range of the $140 billion or so seen in the first quarter of 2010. The difference now, she noted, is that banks are charging a lot more in interest.

"Free money is gone. The banks will be charging for it," she said. "We've seen the lending pick up, which is good, but certainly not to the levels we saw in '05, '06 and '07, and not in the places that necessarily need it the most, which are the small businesses. The lending criteria's gotten tighter, the price has gone up. But they are lending again."

That kind of climate has prompted many solution providers to better understand the role of financing in winning deals, and also, according to Von Seggern, what has spurred Cisco to offer greater and more comprehensive programs through Cisco Capital.

Next week, Cisco will debut a Cisco Capital Marketing Kit, Von Seggern said, which much like the technology architecture and marketing kits Cisco provides to channel partners, will contain resources to help VARs close deals using financing. Within the kit will be customer decks, value links, training materials, copy blocks and information specific to sales theaters and international sales.

Whereas before Cisco Capital information was relegated to the architecture or marketing kits themselves, this is the first time it will see standalone treatment, Von Seggern explained. It's a 50-page kit solely on financing.

"This is how to get the order in these new times," she said. "This is how to change your conversation."

Next: Cisco Capital Gains

Cisco Capital has seen success with a number of recent financing programs, chief among them the three-year, zero-percent financing it offered for SMBs starting in January 2010.

That program covered purchases ranging from $1,000 to $250,000 and spanned the entire Cisco portfolio, including hardware, software, services and maintenance, with customers financing whatever they buy on lease for 36 months, and then owning it, with no interest paid to Cisco. Partner use of the program increased nine-fold during its first three months, according to a previous interview with Cisco's Andrew Sage, vice president of worldwide small business sales, and Von Seggern confirmed it was "a home run" throughout its time in the field.

The program has since been changed, and the current terms, which extend to the end of Cisco's fiscal Q3 at the end of April, offer three-year, 3-percent financing on deals that go up to $150,000. The zero-percent program wasn't meant to be long-term, Von Seggern said, and is still "a hell of a deal" when many customers are financing deals at 12 to 18 percent.

"It was a way to drive excitement, get the mindshare, and get this thing started," she said of the three year, zero percent program. "But it is an expense [for Cisco]."

Among other trends solution providers need to see coming, Von Seggern said, is the leasing mentality of data center customers. Now that Cisco's Unified Computing System (UCS) has upped the vendor's stake in the data center, and particularly the high-end server market, Cisco partners need to prepare themselves for that financing mentality.

"Those customers are used to leasing, and they're asking for it. We're seeing significant pickup in requests for fair market value leasing, and the typical data center customer already knows those concepts," she said.

Where leasing isn't happening as often as Von Seggern and her team expected -- and surprisingly so -- is in the SMB space.

"I would love for us to get to that point, but they're tending to do full payout," she said. "And that's a segment that really needs financing."