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Financing the deal- how an improving economy is changing the lending climate

Print IT Reseller asks leading fiance providers about the financing options available to resellers and finds out how an improving economy is changing the lending climate

Print IT Reseller asks leading fiance providers about the fiancing options available to resellers and finds out how an improving economy is changing the lending climate
Print IT Reseller asks leading fiance providers about the financing options available to resellers and finds out how an improving economy is changing the lending climate

How has the climate changed?

Jo Harris, Head of Sales, Vendor Finance, Siemens Financial Services: “Business sentiment has improved as the UK economy has gained strength. Rising business confidence has led to new investment, which is reflected in the growth of the asset fiance market.

“According to the Finance & Leasing Association (FLA), in 2014 the asset fiance market exhibited its strongest annual rate of growth since the onset of the financial crisis. The positive trend has continued into 2015. IT equipment finance was up by 53% year-on-year in the first quarter, with March showing the highest monthly total of new business (£3.1 billion) since September 2008.”

Andy Milsom, Head of Partner Training  and Development, BNP Paribas Leasing Solutions: “We must start by recognising that the fist port of call for a business needing debt fiance has traditionally been the bank. Therefore any change in the way banks operate has a significant effect on the money available for businesses to invest.

“There are two changes which are relevant: firstly the cost of loans and secondly the availability of funds. In both cases, the banks, which are now operating within a very much more regulated environment, are finding it difficult to satisfy current market demand.”

Is finance still hard to get?

Jo Harris: “According to the latest Bank of England Trends in Lending report, the annual rate of growth in the stock of lending to SMEs remained negative in the three months to February – notwithstanding higher gross lending to SMEs by all UK monetary financial institutions (MFIs) in 2014. The more stringent post-crisis banking regulatory environment means that credit remains difficult for businesses, especially for SMEs.”

Andy Milsom: “The regulatory requirement of most significance is that all new bank loans are matched by higher capital reserves. This makes lending expensive and banks much more selective in deciding to whom they should lend. A further regulatory instruction is that a much higher degree of due diligence be applied to every new loan. This is resulting in higher costs for the banks and, given that the same cost applies irrespective of transaction size, banks are likely to become reluctant to take on small value loans, such as those that might be required for investment in IT assets.

“As the banks slowly withdraw from some of their traditional activities, alternatives are starting to appear (e.g. peer-to-peer lenders) or reassert themselves (e.g. specialist leasing companies), so fiance remains available but not necessarily from the traditional source.”

What advice would you give to resellers looking to finance deals for their customers?

Jo Harris: “It is important that resellers work closely with a finance partner that understands the market dynamics, technology applications and their development path. Finance providers specialising in the sector are intimately acquainted with the pace of technology development and are therefore better placed to understand the benefits and business risk involved with the technology. They will also be well positioned to predict and help mitigate the underlying risk of technology obsolescence through flexible fiance solutions and take an informed and specialist approach to underwriting.

“Key to success is for resellers to work closely with their chosen finance provider and to take time to explore the optimum way of working together – how best to serve the reseller’s customers’ needs, common interests and goals – in order to develop a mutual strategy that can serve both parties.”

Andy Milsom: “Resellers need to be aware of the regulatory environment under which finance companies operate. In particular, a much greater emphasis is now placed on treating customers fairly, with the regulators insisting that procedures are implemented and followed to ensure compliance. This means that in every case, both the customer and the deal itself will come under more scrutiny than would be required for credit purposes alone. “It is now more important than ever to submit proposals where the information about the deal and the customer is full and accurate. Getting it right first time will mean a quick and hassle-free transaction.”

How can a fiance partner help resellers to secure funds?

Jo Harris: “It is imperative that a fiance partner makes continual efforts to understand each reseller’s business developments, new products and solutions, as well as business challenges. With the right insights and acquired knowledge, the finance partner can then develop financing solutions that facilitate the reseller’s  business growth while meeting the needs of its customers.

“Simple paperwork and speed of financing decisions can often mean the difference between closing a sale and losing the customer to a competitor. Accordingly, an effective finance partner will provide a simple, quick and effective credit decision tool, with which resellers can assess a customer’s eligibility for finance. A finance partner should also be able to demonstrate presence, a consistent commitment to the market and a reputation for being a reliable partner for the resellers they work with.”

Andy Milsom: “Specialist leasing companies have the funds available to support investment in IT and it’s extremely important that resellers make their customers aware of this leasing option.”

How do you work with the channel? What support do you provide?

Jo Harris: “At SFS, we take a long-term view to building relationships with resellers. We have field sales support specialists across the country who command excellent knowledge about business processes. We also take a proactive approach in helping resellers better embed fiance into their customer proposition through the provision of training and support. Such initiatives allow us to provide all-round service and a fast response to resellers’ needs, whilst also remaining fully up-to-date with evolving market dynamics.

“Technologically-led processes will become a key driving force in increasing business efficiency and effectiveness. We have therefore enhanced our services with Siesmart, an online multi-language, multi-currency fiance application tool for resellers that offer integrated finance.

It provides users with live management information, complete pipeline visibility, full password control for the user to administer permissions for their personnel, as well as multi-location operational and analysis capabilities. Regular updates to SieSmart are undertaken to further enhance its functionality.

“By improving the number of automated decisions for financing proposals and refining underwriting policies, SFS has continuously increased auto decision rates for credit applications and turnaround speed, enabling resellers to close deals faster.”

Andy Milsom: “We have a team of field and office-based finance specialists who support our reseller partners at every step in the sales process. This starts by ensuring that we develop our products in a way that makes them an integral part of any solution offered by a reseller to their customer. In particular, we actively promote the concept of managed services.

“Through our celebrated Vendor Academy, we provide training to resellers in general business fiance, how to sell equipment using point of sale finance and the features and benefits of specific fiance products. We also recognise that IT resellers now need to have the confidence to offer leasing at point of sale rather than simply leaving the customer to make their own arrangements. To meet this requirement we have developed training seminars that look in some detail at all the benefits leasing can offer, including the latest tax implications.

“Next, when the deal is won we have support staff charged with ensuring that everything proceeds smoothly and the reseller is paid as soon as the installation has been completed.

“Last but not least, those resellers who have introduced a portfolio of leases will be helped to generate repeat business through active database management and flexible low-cost methods of upgrading or adding to the solution originally supplied. It is perhaps often forgotten that one of the biggest benefits offered by leasing is the ease with which a customer can change equipment to take advantage of new technology.”

What are your predictions for the rest of this year?

Jo Harris: “The rapid speed of technological advancement is leading to faster technological obsolescence. As a result, the traditional ownership mindset will become even less relevant. Instead, companies are increasingly interested in making a far stronger link between the benefits of use of the technology and actual cost over time, after any tax benefits, and making far-sighted ‘value to the business’ decisions.

“Financing solutions with the transparency of total cost over time not only help underpin this process but also ease cash flow and free working capital which can be more efficiently deployed in other business activities. The possibility to upgrade technology can also be included in the financing contract, allowing businesses to stay at the forefront of technology. Experienced fiance partners that benefit from being a trusted brand with a demonstrable long-term commitment to the market, like SFS, will play a vital role in helping resellers’ customers harness technological innovations in an affordable and cost-effective way.”

Andy Milsom: “As far as the market is concerned, it has been suggested that future price rises driven by changes in currencies might be a risk to continued short-term growth.

“This might be a two-edged sword because if sufficient notice of impending price increases is provided, a market stimulus will be in place and a leasing option will enable users, without the necessary budget, to take delivery of equipment ahead of price increases and spread the associated cost over a number of years.”

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