The Credit in IT
Afairly well-known SMB was recently looking to take on lease 50 odd laptops. The IT manager, was lamenting that while the leasing company had initially agreed to the deal, at the eleventh hour it suddenly cried off citing that the company's credit rating was '8' and the leasing company is unable to do business with anyone having a credit rating above 6. They will be willing to go ahead with the transaction in case the bank stands as the guarantor and is willing to underwrite costs. This is the typical scenario facing several SMBs as well as partners who often lease out or supply hardware to these companies. Working capital and credit flows are the biggest problems staring at their faces and there seems to be little room for maneuvering. It's a Catch 22 situation as otherwise businesses on both sides would come to a standstill. So what could be the solution?
One could be Non-Banking Financial Corporations (NBFCs) coming into the fray and helping partners, suppliers and SMB users by providing them easy financing schemes. Redington owns one such NBFC which however functions as a neutral channel financing company; banks like ICICI offer softer loans or easy finance schemes under various SMB programs. Both the user organizations as well as suppliers/partners (who too will come under SMBs) can avail of these facilities. The banks could also look at restructuring their loan EMIs or at least rationalizing them considering that many of the SMBs are still to find their feet as they are coming out of the recession mode. However, it is imperative upon the partners or the SMB organizations to make a clean breast to the banks or whatever financial institutions they are dealing with. Any request for loan restructure revision should take into account your true current fiscal situation as well as a fairly accurate assessment of your future cash-flow position. Evading the unpleasant truth for long either by fibbing or by pushing them under the carpet would lead you nowhere—be it your topline or bottomline, your credit rating outside or your general market reputation. There are talks of RBI stimulating the SMB sector, but even if that happens, our partners and SMBs in general have to maintain a certain standard of fiscal hygiene to take full advantage of.
Often vendors could offer extend financing terms to SMB resellers. These programs offer eligible resellers period-based interest free credit by extending indirect financing through their distributors. Often a joint approach between a vendor and a financing company, this could be a godsend not only for maintaining the working capitals but even to successfully enable hardware acquisition like what the NCR company wanted to do. The subsidies thus offered to both the reseller as well as the user not only allays their immediate woes but also stimulates business growth for both as well as driving incremental sales revenue for the vendors. What we really need in these cases is a happy marriage between the partner credit programs (that subsidize and elongate the payment cycle to the distributor) and end user leasing programs (that accelerate cash flow from end user to reseller). That way not only the working capital problem is successfully tackled, even my friend the IT manager will get lesser sleepless nights.