By R.J. Grimshaw
It may seem contrarian, but there are lessors in the IT equipment sector that have a bullish outlook for the future – especially those that focus on vendor programs.
This optimism is fueled by the fact that only a miniscule percentage of value-added resellers in this space currently offer lease financing to their customers – at a time when many small and mid-sized businesses are strapped for cash.
What VARs fail to realize is that lease financing provides them with a means to close these deals in a sluggish market and, at the same time, improve their margins.
The challenge for IT lessors moving forward is to work diligently to show manufacturers, distributors and dealers the value of lease financing. Lessors must educate them on how to sell leasing to their customers. The industry also must utilize modern technology to make the process easy and manage vendor programs effectively.
In other words, if done right, lease financing can make everyone’s job easier in the current market environment. Its value is clear.
A Case in Point
About a year ago, a mid-sized IT equipment reseller with annual revenues of $25 million was approached with the idea of offering lease financing to its customers. The strategy was designed to increase the reseller’s margins by double digits.
The concept intrigued the dealer principal and he, along with his vice president of sales, convinced themselves to give it a try. They had their staff trained on the nuances of offering such financing to customers. A special marketing program was developed and the reseller’s systems were updated to automatically include a financing option on all quote forms.
During the first year of the financing program, the reseller leased more than $1 million in IT equipment, exceeding everyone’s expectations. This success convinced the sales team there is even more opportunity ahead to close deals through leasing, especially considering the liquidity crunch facing many small and mid-sized businesses these days.
With his customers now expecting a lease quote, the reseller expects to close between $3-$4 million in lease business over the next 12 months. Not bad, considering lease financing accounted for none of the firms business less than two years prior.
This success story should, by no means, be an isolated incident. Yes, our challenging economic climate has forced IT equipment manufacturers, distributors and other channel players to shrink their sales teams. A number of funders also have exited the market.
The current conditions, however, favor those lessors who are committed to supporting the retail channel over the long term. The pay off could be huge, especially when one considers just how big the SMB market is and the dearth of finance options available.
Education is the Key
The question, then, is what are the keys to success in this tough market? As the above example illustrates, a lessor must provide real value to the vendor. And the vendor must aggressively promote lease financing as an option for customers who need the equipment.
There is a focus underway by the leading lessors to educate the retail channel on the benefits of lease financing – both from the vendor’s and equipment end-user’s perspective. Experienced, seasoned professionals well versed in lease financing are working with manufacturers and distributors to establish vendor finance programs and then help administer them in a manner that is virtually seamless to dealers and their customers.
In addition to talent and education programs, lessors also must invest in the right technology systems to effectively service small and mid-sized organizations. These lessees typically engage in transactions ranging in value from $250,000 on down. Many are valued at $150,000 or less. For these small-ticket transactions, speed is everything.
To really enhance a salesperson’s efforts, automated systems must review and render a financing decision quickly and then process the transaction to fund the vendor promptly. Lessors that have invested the necessary resources into such systems are realizing technology acts as an enabler for their sales teams on the ground building and managing vendor financing programs.
To this end, great enhancements have been made in recent years to the Web portals used to provide the IT retail channel and end-users with 24/7 access to the program. The portals are more user-friendly than ever and intuitive in nature, capable of handling applications, quotes and reporting with ease.
Software and Services Leading the Way
Due primarily to the economy, sales of traditional IT equipment – most notably hardware and storage devices – are flat year over year among SMB customers. They are simply holding on to hardware and storage devices longer. An increasing number, however, are leasing business critical software.
The challenge for lessors that specialize in software leasing focuses on awareness. Relatively few manufacturers or end-users realize that software can now be easily financed. It’s not a traditional lease, but organizations can finance software over 24-36 months with a promissory note or other special finance products.
There also is heavy interest today in managed services among both manufacturers and end-users, providing lessors with another revenue stream. Service contracts, including extended warranties, technical assistance, consumables and other needs, are combined with traditional lease financing – with the charges being remitted back to the vendor.
In terms of hard assets, there has been a run on the leasing of fleet management technology systems among small and mid-sized businesses. This has resulted in large part from the rapid rise in transportation costs over the past year and the need to better manage the costs of their vehicle fleets. This trend should continue well into the future as businesses try to maximize fuel efficiencies.
At some point, the hardware and storage markets will rebound, for technology continues to evolve at breathtaking speed and businesses will undoubtedly reach a tipping point in the capabilities of their existing IT equipment. To prepare for this, lessors must work hard now to assure the retail channel is ready to sell lease financing.
Back to Basics
In the current market environment, technology resellers are realizing the value of nurturing and growing relationships with lessors. The upside is immense, given the critical roles IT systems and services play in managing businesses of all sizes.
Many of the largest lessors in the past competed solely on price, but it appears they did not have the appetite to commit the long-term resources needed to compete under the current conditions. But lessors determined to prosper now and in the future are adopting a back-to-basics mindset, defined by personal service, and new standards in responsiveness and flexibility.
Such an approach, forgotten for a time by many in the leasing industry, is extolled by the IT channel as a “breath of fresh air.”
Far from dead, lease financing in this sector is indeed enjoying a resurgence, fueled by lessors who acutely understand the needs of small and mid-sized businesses, including the acquisition of critical technology assets to help them succeed.
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R.J. Grimshaw is platform leader for the Tygris Vendor Finance technology business unit. A Tygris Commercial Finance company, TVF originates transactions through manufacturers, distributors and dealers in the commercial and industrial, graphic arts, healthcare, office equipment and technology industries. RJ can be reached at 315 529 2903