Microsoft is outsourcing the decision to lend to SMBs to financial services firm CIT Group.You want to grow your business, but to do that, you need to upgrade your technology infrastructure. And if you’re like the vast majority of companies under the Fortune 1000, you don’t have the funds to purchase the equipment outright.
Given the current economic downturn and credit crunch, you might think your chances of getting a loan to buy that equipment are close to zero, but the vendors that need you buying more have been unveiling improvised credit and finance structures to get you those loans and sell their wares.
Dell Financial Services has long offered loans to small businesses, and just last week, Avaya announced low-interest financing to companies through a third party. Microsoft late last week announced a related but different approach, in conjunction with an announcement that it plans to increase the amount it lends to small businesses by as much as 60 percent.
Microsoft doesn’t intend to make lending decisions about SMBs (small and midsize businesses) on its own, however, which might put shareholders on edge; instead, it will leave that decision to CIT Group, a New York-based financial services company to approve and underwrite the lease or loan using capital from Microsoft Financing.
What Microsoft has done, explained Joseph Pucciarelli, an analyst at IDC, is that instead of financing the transactions itself—clearly, a risky proposition—CIT will evaluate the credit-worthiness and risk of lending money to potential customers.
“While there is more risk associated with smaller companies that aren’t well-established or don’t have a lot of assets, vendors realize that these are also the companies that are growing,” Pucciarelli said. “They have found a way to take managed, measured risk.”
“Microsoft has put up a 20-foot-high wall around CIT such that once CIT makes a decision on credit, Microsoft has no opportunity to second-guess or override that,” Pucciarelli said. “The structure that Microsoft and Microsoft Financing have put in place is, in my opinion, an industry best practice because it facilitates good underwriting.”
Loans Keeping SMB Deals Afloat
These moves aren’t unexpected. In February, AMI Partners, an SMB-based consultancy, predicted that 2008 would be a big year for manufacturer and vendor financing programs designed to keep or retain SMB business. In part, the company said in a report that offering competitive financing terms on products and services could help companies continue to expand their IT footprint. The report also noted that many smaller companies specifically look for these types of financing options when making their IT investments.
This is particularly good news for smaller companies, many of which are finding out the hard way that while their creditworthiness hasn’t changed, their ability to get a bank loan may have.
“While their banks may have cut back on financing, if they are financially worthy, there are other opportunities to access capital in the technology sector,” Pucciarelli said. “It’s good business for both sides.”
