Great Opportunity for Lessors Committed to IT Equipment Vendors

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.

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.

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. 

1. 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.
2. For these small-ticket transactions, speed is everything.

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

1. 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. 

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.”

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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