Distributors Step Up Financing for Managed Services

By Herman Mehling

May 30, 2008

Managed services can present cash-strapped VARs with a critical dilemma: How to afford playing in a fast-growing market that is full of opportunities but involves significant upfront investment that they don’t have? The smart move for VARs is to see whether a distributor or vendor can help with financing.

Major distributors are stepping up their financing efforts in the area of managed services. Tech Data ,Ingram Micro and Avnet all have recently introduced financing options that channel partners can tap to expand their managed services opportunities. With the market experiencing healthy growth, such financing likely will become a point of competitive differentiation in the distribution channel.

This month, distributor Tech Data rolled out a comprehensive financing program to help managed service providers (MSPs) to finance their services offerings. The program, backed by IBM Global Financing, enables VARs to finance deals worth as little as a $1,000 – making it attractive to VARs who provide managed services to SMBs.

For deals under $300,000, IBM Global Financing doesn't require MSPs to submit end-user financials and will provide credit approval and contracts within one hour

Whether VARs are targeting the SMB space or enterprise customers, one thing is sure: the market is huge and growing. A recent study from Ovum Research commissioned by Cisco, projects that the global market for four managed services (metro Ethernet, IP VPNs, IP voice, and security) is growing at a compound annual growth rate of 18 percent. Ovum forecasts that the market will be worth $66 billion by 2012.

Managed services solutions often require resellers to make significant upfront investments, which are recouped over a long-term service agreement, said Joe Quaglia, senior vice president, U.S. Marketing, Tech Data.

In the long run, managed services enable resellers to build margin and enhance profits, but inadequate financing stops many MSPs before they begin, he said. Tech Data’s new financing program is designed to enable MSPs to finance their solutions purchased from Tech Data; structure monthly or quarterly payments for hardware, software and services under a single invoice; and keep track of all financed assets.

Other big distributors, notably Ingram Micro and Avnet, also provide good financing for managed services .Early this year, Ingram introduced a suite of customizable leasing finance options, including one for managed services, and expanded field credit resources to help VARs grow and capture more services revenue in 2008.

The financing is available through Ingram Micro Preferred Leasing (IMPL). VARs can also use IMPL's private-label financing solutions to brand their own company name and create a customized financing portfolio for their customers. Each financial services offering is available exclusively to Ingram Micro VARs focused on meeting the IT needs of small and mid-size businesses (SMBs).

Having access to the right financial services is critical for VARs who want to build their business," said Justin Crotty, vice-president of Ingram Micro's services division. By leveraging Ingram Micro's financial services, VARs are able to provide their SMB customers the service, support and financing they need to maximize ROI on their technology purchases, said Crotty.

Avnet, through Avnet Capital Solutions, provides a wide range of flexible financing to help MSPs close deals and position themselves for growth, said Jack Morris, vice president, technology and market solutions, Avnet Technology Solutions, Americas. Morris said leasing is one of the most powerful financing tools that MSPs can leverage for their success.

 “Leasing helps MSPs overcome a customer’s most likely objection to a deal, the cost,” said Morris. “And, it gives them more flexibility to do upgrades and to add on to existing solutions quickly.”