IBM Global Financing Adds $2B in Stimulus-Related Credit

May 11, 2009

In recent months, a number of IT vendors, including Dell, HP, IBM, Lenovo and even distributors such as Tech Data have attempted to pry open locked IT budgets by offering favorable financing options for customers and channel partners.

Now IBM Global Financing, which last October and again this past February introduced new technology financing offers, is urging customers to move forward specifically with IT infrastructure projects, bumping by $2B the amount of credit available for initiatives in key areas such as smart grid, healthcare information technology and broadband access.

Company officials said that the move is intended to spark IT projects that may be waiting for stimulus money as provided by the American Recovery and Reinvestment Act (ARRA). But funding under the ARRA may not arrive for another year or two and IBM figures that by extending credit options to customers considering IT solutions in areas mapped out by the stimulus package it can speed up the timeline for technology purchases.

“The idea is to accelerate projects where our clients may be waiting for a grant or have some budget challenges,” said Joyce Blackwell, vice president IBM Global Financing. “We understand that credit is still very tight in the market right now and our clients are watching budgets and capital expenditures closely. Our intent is to extend credit to our clients in a way that’s flexible and matches their needs with budget and cash flow.”

IBM provides some $40 billion in annual financing to customers for leases and loans, about 20 percent of which originates through the vendor’s channel partners. For referred financing deals, IBM pays partners fees ranging from .25 percent to 1.5 percent of the total amount financed.

Blackwell said that the new financing package arms channel partners with an additional mechanism to close sales. She noted that the vendor’s channel partners and customers are finding it difficult to obtain credit for IT projects in the current economic climate and that the process is arduous and “involves close financial scrutiny.”

“We look at partners as an extension of our sales team,” she said. “The $2 billion is offered to any credit qualified customers whether they come through our partners or our sales team.” Blackwell said that a number of IBM’s financing options directly benefit channel partners. For example, credit engagements that originate through channel partners are paid in full directly to the partner once the customer signs off on the financial documents and the project is delivered. Customers may defer repayment to IBM for up to six months, and then make interest only payments for the following 12 months.

“The partner receives the funds immediately when the customer signs the financial documents,” Blackwell said. “It greatly helps to fund the partner’s cash flow.”

IBM will grant credit based on the customer’s qualifications, irrespective of anticipated funding through the ARRA, Blackwell said. Financing is available for hardware, software and services and is not confined to IBM products. “We’re not financing things that just have an IBM logo,” she said. “This is meant to be project-oriented and have IBM content but we understand that other companies’ products could be included.”

One channel partner that has consulted with IBM on its Dynamic Infrastructure program agreed that the availability of additional credit targeted at stimulus-related IT projects will help bump sales. “We expect we will be using some of that money, especially for our larger accounts,” said Bob Verola, president of Vicom Computer Services Inc., a Farmingdale, N.Y.-based solution provider.

Blackwell said that the additional $2 billion in available credit might be increased if IBM sees clear evidence that the funding has unlocked previously closed budgets. “If the program works well, we could look at extending the number,” she said.

An analyst following the financing market for market researcher International Data Corp. praised IBM’s tying credit to stimulus-related IT projects. “Mapping and applying their IT project financing skills to ARRA-related infrastructure projects will provide many of the same benefits IT buyers have enjoyed for years—faster time to market, funding flexibility and tailored repayment options,” said Joseph Pucciarelli, director IDC Research, Technology Financing Strategies.