Trend

Financing for SMBs

Vinita Gupta focuses on the finance schemes being offered by global IT majors to facilitate IT investment by Indian SMBs

The SMB segment provides a huge opportunity for IT equipment providers to expand their client base, particularly in tier-II and tier-III Indian cities. According to a recent study by AMI Partners, small and medium-sized businesses in India (those with fewer than 1,000 employees) are planning to spend $8 billion in 2007 to beef up their IT infrastructure, which represents a robust 23% increase from last year.

Generally, it has been seen that cost is the biggest determining factor when it comes to IT purchases by SMBs. Consequently, by providing a financing window, companies like Cisco, HP and IBM are allowing SMBs in the country to acquire new technology without adversely affecting their balance sheet and cash flow.

SMBs stand to benefit

Leasing is advantageous for SMBs and large enterprises because it enables them to gain the maximum benefit by using a technology or solution without having to make a large capital investment. Also, it allows SMBs to make investments in other areas of their business, or benefit from additional technology that they otherwise could not afford.

Gautam Munish, Leasing Country Manager, Cisco Capital India said, “Leasing enables customers to upgrade or refresh their technology as per business needs or as technology evolves. There is no need to be burdened with legacy equipment that has been paid for with cash. Also, leasing rather than buying a solution, allows a company to acquire exactly what it needs, rather than what the current budget dictates.”
Deepti Dang, Head-Marketing, Commercial and SMB, Personal Systems Group, HP India said, “Today’s SMBs are tomorrow’s enterprises and we would like to grow with them. The Indian SMB segment is one of fastest growing consumers of IT in the Asia Pacific region, with spending on IT expected to grow 21% compounded annually during 2004-08. The problem, however, is that SMBs usually do not buy technology when they need it but when they have a budget for it, and hence we want to ensure that they have the money to buy the technology.”
Srinivas Chakravarthy, Country Manager-IBM Global Finance, IBM India/South Asia pointed out that SMBs are faced with the task of surviving in the competitive Indian market and staying ahead of the race in order to succeed. For this to happen, they need to focus on their core businesses with the confidence that they have end-to-end support from their IT infrastructure as they grow. Any organization can benefit from the reduced costs, simplified budgeting, credit preservation and flexibility provided by financing.

Schemes on tap

In June 2007, Cisco Capital’s finance program, Easy Lease, was launched addressing the needs of the SMB market. All the technologies sold by Cisco can be leased through this financing initiative. Payments can be broken down into monthly or quarterly installments. The program is currently available for a 12 to 36 month term. It assists local commercial enterprises in making strategic IT investments through a long-term partnership with Cisco and its channel partners.

Cisco Capital claims to finance the complete requirement consisting of both Cisco and non-competing products and services from other vendors.

Munish said, “SMBs can make their payments on a monthly or quarterly basis with the first [installment] normally due following delivery and acceptance of the solution by the customer. Other repayment profiles are also available if required. Tendering of post dated checks or direct debit are the most common modes of payment, but in some cases Cisco Capital can also arrange payment by invoice at a small additional cost.”

IBM Financing Advantage is a suite from IBM Global Financing and it offers access to leases and loans to purchase hardware, software and services from the company as well as non-IBM hardware.

Cisco Capital uses funds from its parent organization and IBM has its own division for leasing/funding called IBM Global Finance. HP Financial Services in association with ICICI Bank, has introduced HP Smart Finance program in India. This scheme claims to provide emerging enterprises with financing options to help them deploy technology in a way that suits their business needs. HP Smart Finance program was launched in September 2007 and is offered to customers through authorized HP channel partners across India.

Criteria for providing loans

Each company has its own criteria for sanctioning loans. For instance, in the Easy Lease program, once a SMB submits the completed forms along with all required documents, it is evaluated by Cisco Capital’s credit team based on various criteria such as existing financial and business/cash flow projections over the next few years, past payment records and the relative market position that it enjoys, etc. Based on this analysis, the client gets an answer within 48 hours on whether Cisco capital would finance the transaction.

Customers with transaction sizes in the range of Rs 10-80 lakh can avail of the Easy Lease program, which offers an interest rate of seven percent. Transaction sizes beyond the indicated threshold attract market rates of interest.

To avail the HP Smart Finance program a company needs to buy at least three machines (any HP product) for one year. The interest rate for the same would be 15%.

IBM has invested in the development of products and services specifically priced and designed for the SMB marketplace under the brand name IBM Express Portfolio. The Express Portfolio comprises of hardware, software, services, solutions and financing. SMBs will also have the opportunity to benefit from IBM’s Express Advantage initiative, which includes the Express Portfolio and provides mid-market businesses access to a network of local IBM Business Partners and customer experience capabilities.

Chakravarthy said, “The minimum limit for a loan is Rs 10 crore and it goes up depending on the credentials of the person/company availing the loan.”

Customer demographics

Initially global IT majors are targeting SMBs in metros and other major cities in India, but they have plans to focus on smaller towns down the line. Cisco’s program is being offered through channel partners in all metros and the mini-metros like Pune, Hyderabad, Chandigarh and Coimbatore, etc. The company is in the process of expanding its reach to more cities through its channel partners.

Munish said, “We have acquired almost 15 new accounts across the country since the launch of the Easy Lease program in June. They have either already taken or are in various stages of undertaking financing under the program.”

Last year, IBM had announced a plan to extend its presence to 14 cities outside of the key metros, and so far the company has launched operations in Bhopal, Chandigarh, Coimbatore, Goa, Jaipur, Jamshedpur, Lucknow, Nagpur, Nashik, Surat, and Vizag. IBM will expand operations to three additional cities including Bhubaneswar, Madurai and Ludhiana before the year is up. HP is also focusing on tier-I and tier-II cities.

Upcoming

HP India will provide training and marketing support for its channel partners, and timely quotes and the relevant legal documentation to customers. HP is also planning to expand its scheme to cover enterprises.

Cisco is planning to focus on two key areas—expanding end-user leasing capabilities to address the growing needs of the SMB market across the country and expand short-term financing program to provide working capital support for Cisco distributors and channel partners for the purchase of Cisco equipment.

Financing was earlier restricted to select partners. Today vendors are offering schemes to their end customers, including tie-ups with banks. These schemes are beneficial to both SMBs and IT companies, and are expected to gain in popularity in the near future.

vinita.gupta@expressindia.com