Finance It!

Game over, right? Wrong. With a good technology-centric finance or leasing company behind you, you can overcome the CFO's objections and close the deal.

Consider the experience of Chuck Parsons, an account executive at Westover Financial, a Santa Ana, Calif., equipment financing and leasing company, which illustrates how a dedicated and hard-working financier can salvage the most troubled engagements.

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Recalling a two-year-old nightmare, Parsons notes that "everything that could go wrong [on a deal] did go wrong on this one." Parsons received the lead on an $80,000 computer system from DTR, a distributor and reseller. It turned out, however, that the end customer, a dental clinic, had a laundry list of financial problems, including—but not limited to—liens and back taxes. "It just went on and on," says Parsons. "But I finally got them approved ... and then they changed their minds [and decided to back out of the deal]."

But that wasn't the end of the story. Parsons says the clinic wanted another computer system so he got them the necessary $100,000, despite the fact that the customer's credit was bouncing up and down like a yo-yo. Westover Financial, says Parsons, actually went beyond the call of duty and refinanced the clinic's debt load of about $300,000, but then "the underwriter filed bankruptcy the day we were going to close."

At this point, most financiers would have run off screaming into the night. But Parsons says solutions selling is not a game for quitters.

He managed to get the clinic approved for yet a third time, but once again, problems on the customer's end threatened to derail the financing. When Westover sent a woman over to conclude a verbal agreement, recollects Parsons, the client executive met her at his home and made a pass at her.

Nearing the end of his patience, Parsons called the guy and said, "Look, I've been working on this deal for 18 months, and if you don't treat my people well and approve this, I'm going to come down and put a hole in the bottom of your boat."

The customer finally relented and signed on the dotted line, and the system sale went through.

While very few deals are this tough to close, advises Parsons, there are enough pitfalls lurking out there to require the services of a financial expert.

"What has been surprising to me," he says, "is how many people who have been in the business for so long haven't a clue how to use leasing in their bag of tricks." That view is confirmed by many channel financiers, who lament that many otherwise-sound deals never get done simply because integrators and resellers don't go the extra mile to help their customers arrange financing.

Another is that for those solutions providers that are knowledgeable about the financing alternatives, there are so many options that picking the right kind of financing help can be difficult.

Your range of financial choices includes business and technology specialist firms, such as Studebaker-Worthington Leasing and Westover Financial; banks with business divisions like Wells Fargo Financial Leasing and Deutsche Bank Global Technology; vendor leasing programs such as Compaq's Financial Services Corp. and IBM Global Financing; consolidators like CapitalStream and online consolidator eLease; and now, distributors such as Ingram Micro and Tech Data are moving aggressively into the lending business.

Before you even approach one of these firms, however, you'll need to have your own ducks in a row. If you've got credit problems, for example, you'll have trouble helping your customers get credit. Financiers advise resellers to pay their bills on time and maintain six months of profitability, which should be enough for finance companies to give your firm a tumble.

Once you've got your financial house in order, you can begin the search for a money partner, which is much like seeking out any other kind of partner. You survey the finance company's offerings, decide if their services are a good fit for your customer base, and then determine if you can work smoothly with them.

It's the last factor that is the most important, say financiers and resellers alike. Whether a finance company works on an agency model—under which it handles all of the financial details—or just provides simple leasing options, isn't all that important a consideration. What's vital is that the finance company's representatives work well with you and are responsive in a timely manner. "Our business is about 95 percent trust—in today's market, that's a major selling point," says Parsons.

Last, but hardly least, the finance company's reps need to understand the technology business. That's why many integrators prefer to work with tech specialists. One Maryland-based Sun reseller notes that "Wells Fargo's offices are great, but their people couldn't tell an Ultrasparc server from a laptop."

However, other solutions providers are wary of leasing companies, believing they're a little shady, and gravitate toward the major business banks. "Once they [resellers] know they can trust us, everything is fine," explains one representative of a leasing company. "But many people think they must work with real bank credit to be legitimate ... the joke is that the bigger banks aren't interested in working with small-to-medium-sized companies, and are even less interested when the customers are SMBs."

Nevertheless, the specialty tech lenders also occasionally come up short in the service of SMB accounts. A Virginia service bureau CEO says he's had "bad luck with Compaq Financial Services, because, frankly, we're too small for them to care that much about ... I need someone to work with me in the small-to-medium business space because that's where my home is."

As for the distributor programs, they are generally too new for most resellers to have formed an opinion. But one such program—Tech Data and Deutsche Financial Services' Simple User-friendly Reseller Finance (SURF) plan—has won some early adherents. This SMB reseller program enables you to finance deals of $50,000 to $250,000. Besides being a one-stop shop for both equipment and its financing, the plan's greatest charm is that it allows some leeway in fees and finance charges—perfect for the small solutions provider with minimal cash cushioning.

The main problem with distributor plans, say industry observers, is that they lock you into a specific distributor. Another potential problem is that distributors like Ingram Micro, Hall-Mark Global Solutions and Tech Data are moving into complete business-side outsourcing for resellers. While this may be just what the doctor ordered for some companies, some resellers don't like putting all of their financial eggs—not to mention their back-office services—into the hands of a single distributor, lest the distributor steal away their customers.

Finding Cash in Times of Trouble Specialty tech financiers and vendor/distributor firms also may be your best bet when credit is tight. Unlike banks, where technology lending is a sideline, for these firms it is often the only line.

Ray Smith, CEO of Ampent, a private-label finance company, says what we're seeing is "a normal reaction for creditors during periods of financial downturn." Ampent's answer, says Smith, is to have multiple lending sources. "With some places, they only have a single lending source, and if they cut off, you're stuck. We have multiple sources of lending, so if the credit programs become tighter, it's not visible to the partners."

Another way to make the best of hard times is to reduce the cost of financing. For example, AccessLease, CapitalStream, eLease and Compaq Financial Services all put documentation online to cut down on more traditional phone and fax costs.

Most of the major technology finance firms also are emphasizing "point of sale" (POS) financing, where everything is done on the spot while you're making your purchase. While POS financing is of little use on complex, long-term engagements, it can take some of the cost out of a simple, quick-turnaround deal.

Leasing, meanwhile, is picking up steam in the channel. Tech Data reports that its leasing business has increased 85 percent over the last three years. Along with this greater interest, leasing arrangements have gotten more creative. Westover, for instance, offers a technology budget lease that gives your customer the option to upgrade or enhance the system you're running for them, without raising that customer's payment. Clients are said to like it because they're not stuck with obsolete equipment.

All of these financing options cannot negate the impact of a tech recession, however. "It's getting more and more difficult to get any substantial amount of financing for technology," laments Michael Bower, CFO of ASP Keylime Software. But, on the other hand, what better time than this to bring something new to the table and get an edge on your competitors?