In recent days, I’ve heard from Cisco Systems, Ingram Micro and other technology companies stating that their lines of credit to VARs and managed service providers remain healthy.
Then, I spotted a timely cover story in CRN examining the Channel Credit Crunch. It was an interesting read. But the credit crisis is a fluid story; even the best run companies can face a financial pinch because banks and lenders have the power to cut off credit at a moment’s notice.
Instead of focusing on the horror stories, I’d love to hear from readers who have found creative credit strategies during these challenging times.
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Tags: Credit Crisis | Managed Service Provider | managed services financing | MSP
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Joe we’ve worked with our local bank (a regional bank without exposure to the subprime mortgage mess) to make sure our line of credit remains open.
Each month we use about $10K of our $100K credit line, but we pay back everything immediately. We use the line even when we don’t need it just to keep the line active. No complaints so far but I visit the bank more often to show my face and make sure we’re still in good standing.
Joe, one of the ways they can work around this is by using my credit by leasing for their clients. The client gets the terms they need but for the VAR it works just like a cash deal
Also, for those channel programs that require a 50% deposit or use of a credit line to get product, all my funders will prefund (fund prior to delivery) half just if I ask them and will usually prefund the entire amt for a small fee absorbed by the VAR or the client.
This lessens their dependence on the channel credit lines.
Stu: Can you give us a feel for the pace of deals right now? Has the market remained steady for you? Slowed down? I’m wondering if you’ve seen the pipeline of work change during the increased economic turbulence in October.
Joe, its definitely changed. My small ticket bread and butter (min 2 years time in business, <100k in equip or tech) has really slowed down quite a bit. I get the feeling that the clients are just paralyzed by fear and wondering if they will make it on the other side of this. These are deals I need cause they often require no financials so I can get them approved in 1-2 business days and move to the funding and documentation part.
However, I’ve seen a big increase from my middle market business(150k-5million). They are in a better financial position and they are positioning themselves for what will happen afterwards. So instead of the 5-10 person law ofc, I’m working the local operator of a national restaurant chain and I’m working with a social networking site co thats acquiring a small telco for the infrastructure and leasing all the switches and telco equipment.
The deals in my middle market are usually more interesting and involve more structuring on my part but they are significantly more timeconsuming effectively doubling my sales cycle, which is a little scary at times.
So to answer, my pipeline has changed significantly with fewer but far more lucrative deals in it at present.
Stu
Stu@southernlendingsolutions.com
http://www.southernlendingsolutions.com
Stu: Thanks for such a frank reply.
Your experiences parallel what I’m hearing from MSP software companies, who say their sales/financing deals to small shops (5 people and under) have slowed considerably in recent weeks.
But on the other hand, larger MSPs seem to be gaining more deals — especially engagements involving midsize organizations that are downsizing internal IT.
I was happy to hear from Cisco, Ingram and several other vendors who say they continue to offer financing to their channel partners. There were some rumblings at the N-able Partner Summit two weeks ago that Ingram may scale back it’s financing to partners. But so far, that hasn’t been the case.
Lance: You strategy sounds similar to a few thoughts I heard down at the N-able Partner Summit two weeks ago in Dallas. Several attendees told me they are using their credit lines — and paying back all the money each month — just to remain active and keep the lines open/healthy.
I heard from another reader who recently shifted his finances to a local credit union-oriented bank that had zero exposure to the mortgage crisis. Plus, the credit union was offering far higher interest on the accounts, which gave him incentive to make the move.
Most of my software companies that I work with have been gearing up and becoming clients of mine directly by having me lease their increased, improved IT infrastructure for their own business rather than referring clients to me as I think their smaller clients are struggling in the way we have been discussing……But at least they are feeling good about making it on the other side so they are getting ready for the inevitable land grab thats going to take place.
I think my vendors need to use the banks and credit lines that will let them, as well as using me to help them.
Stu
Update: Dell is the latest company to promote financing to partners during the credit crunch. Details are on Dell’s channel blog.