IT Financing for SMBs

We all know how quickly technology changes, and with such fast-paced innovation comes smarter, more efficient ways to run a business. One of the challenges small businesses face is finding the money to incorporate the technology they need to keep a competitive edge. In most cases, companies must find financing in order to acquire hardware, software, peripherals and outsourced services.

Historically, business owners looked to their banks for loans or to leasing brokers if the bank declined their request. Today, however, there’ a new option as the makers and providers of leading products and services now offer direct financing to SMBs.

We took a look at two of the most high profile IT companies offering financing, IBM and Dell, and learned there can be distinct advantages to more traditional lending and leasing options.

IBM: Financing Covers Third-Party Products
After selling off its PC unit, you might think that IBM would not be a likely place to seek financing. Not so, says Chuck Thomas, IBM’s director of worldwide SMB sales and marketing. He makes note of the fact IBM’s Financing Advantage program will consider financing for not only IBM products and services, but also for non-IBM software and IT services. Notable highlights of this financing program include the following:

• Leases tend to allow for higher credit limits due to the collateral value of hardware.
• In most cases, the online application process for qualified applicants result in signature-ready contracts within an hour.
• The application process is conducted through an IBM Business Partner, IBM Solution Sellers or authorized representatives of IBM and IBM Global Financing.
• Dunn & Bradstreet and, if it exists, an applicant’s previous payment history with IBM are the primary sources of information on a small business’ credit worthiness
• Present loan interest rates equate to about eight percent and 9.5 percent for IBM and non-IBM hardware, software and IT services respectively.

In 2004 IBM Global Financing financed approximately $2.5 billion in hardware, software and IT services to SMBs.

Dell: One Application Fits All
Not to be left behind by the godfather of computing, Dell offers its own IT financing program. Quick Loan, Quick Lease and Dell Business Credit represent the three financing options offered in one application:

• Quick Loan lets you purchase your Dell products and pay off the balance in 60 interest-free days.
• Quick Lease offers 30 months of fixed payments with no interest charges.
• Dell Business Credit is a line of credit with a revolving payment plan.
• Interest rates currently vary between 12.99 percent and 25 percent depending on the SMB’s credit history.
• Dell financing programs are limited exclusively to Dell products, services and third-party products and services distributed by Dell.

Suneet Paul, vice-president and general manager for Dell SMB and Transnational Group, is quick to emphasize the ease of one application process for the separate financing options. Likewise, once you successfully apply for and use one or more of the financing programs there is no more application process. Paul also notes a SMB can simultaneously use more than one option. For example you may to purchase smaller cost items on the revolving line of credit and use the loan program for longer-term investments.

The credit application process is conducted in-house at Dell Financial Services under a joint venture with CIT.

Caveat Emptor
Dell’s been having a bit of legal trouble regarding its consumer financing program, as reported in this article from SmallBusinessComputing.com’s sister-site, InternetNews.com. In a recent California class action suit, both Dell and CIT have been accused of using bait-and switch practices. While there’s no word yet on the validity of the claim, it’s a good practice to thoroughly review and understand the financing terms you receive from any lender.

Which is Better?
Just as no single technology solution is right for every small business, the same holds true for IT financing. Small business owners are more likely to seek financing from their commercial lenders, especially where the company’s operating accounts reside. An excellent credit history will likely garner you a very competitive interest rate of seven-to-eight percent. On the other hand, seeking alternative financing options with vendors like IBM and Dell can create access to additional capital.

IBM may be more beneficial to a larger company, especially when IT investment is directed to multiple vendors. While IBM views companies with fewer than 25 employees as a “consumer environment,” Dell offers financing to small and medium-sized businesses, regardless of how many employees they have. So even the little guy in a home-based business is on Dell’s SMB radar.

Commercial banks still beat the IT vendors on interest rates. Conversely, Dell and IBM offer no-interest leases that reflect the fair market value of the equipment at the time the lease begins. You won’t get that at the bank or through brokered leases that tend to offer higher monthly payments and deposits. Furthermore, when dealing with these IT vendors, they know what is best for your technology requirements. Financing and IT services come under the same roof.

As one commercial lender said, it is a matter of relationships. An SMB loyal to IT brands will tend to gravitate toward the Dells and IBMs of the world if the financing options are attractive, don’t add excessive pressure to company cash flow and still leave open the option to seek loan services from the commercial bank for other needs.

Editor’s Note: HP responded after our deadline with the following information on its financing program.

HP‘s Smart Finance Service for SMBs offers a range of options for a variety of budgets. Its latest leasing program, Budget Stretcher, lets you spread out your payments over time &#151 up to 51 months total. HP says the program lets SMBs keep monthly payments within their budget for the life of the lease. The lease terms apply to all HP products and services, including the products sold, but not manufactured, by HP.

The company also offers a 2.9 percent leasing deal through April 30. Lease any hardware and software or services and pay 2.9 percent interest for 24 months. You’ll find more information and other promotional deals on the company’s Web site.

Steve Windhaus is principal of Windhaus Associates, a business plan consulting firm serving small, existing and startup ventures throughout the United States and overseas. His clients range from technology-based firms in software development, e-commerce and telecommunications to retailers of ATVs and watercraft and a variety of service firms. Steve is a published author who also conducts training in business plan development and participates as a judge in business plan competitions. Steve can relate to small biz environments relying on computer technology. His technology skills are all self-taught.