Show Me The Money- SI's Multiple Funding Options and Challenges

Channel partners and SIs are exploring multiple funding avenues as cash flow challenges impact their businesses

In a contemporary business environment, success demands that companies recognize the need to be diligent in utilizing their resources. Regardless of size, businesses are now trying to preserve money, both cash and credit. This sets scrutiny on their capital equipment purchases.

Companies of considerably large sizes are generally able to raise required capital from financial institutions. They owe this to their strong clout. However, companies in the IT sector have fewer options for accessing capital. Moreover, they often face resistance from traditional lenders. This sector has been struggling to keep up with market transitions.

Options such as financing are alternatives available for acquiring technology. Financing allows spreading of costs over a period of time with monthly payments. The latter eases cash flow and ensures protection of capital and preservation of credit lines. What makes financing significant in recent times is the fact that businesses are looking out to be more strategic with budget and technology investments. Those in business realize that the decision to acquire technology and services is just as critical as the investment decision itself. In a recent Gartner report, it was revealed that through leasing, the total cost of ownership (TCO) is lowered. This is perhaps because IT hardware and software standards are introduced and companies begin to plan life-cycles for IT assets. This augurs well for SMBs.

SMEs require timely and adequate capital infusion through term loans and working capital loans, particularly during the early and growth stages. Historically the MSMEs have relied on following sources for financing their needs:

• Credit Limit, loan from banks
• Ancestral capital, personal savings, loans from relatives, loans from unregulated market
• Finding from Vendors/ Govt.

Credit Limit/ loan from Banks

Taking about the same, there are many System Integrators and Channel partners in India who have different kind of financing options as per their easy reach and compatibility.  Raise Money through Banks Loans is one of the main sources of raising fund for the business. Public sector banks have been pioneers in providing financial assistance to several SME’s which can approach the banks for loans under various schemes. The bank provides two kinds of financing for businesses. One is working capital loan, and other is funding. Working Capital loan is the loan required to run one complete cycle of revenue generating operations, and the limit is usually decided by hypothecating stocks and debtors. Funding from bank would involve the usual process of sharing the business plan and the valuation details, along with the project report, based on which the loan is sanctioned.

Shyam Modi, Director, Modi Infosol

Delhi based Shyam Modi, director, Modi Infosol shared his funding raising option and shared, “Rising funds is one of the main aspect while doing any business. We use CC limit from banks to run our business. Cash credits are more commonly offered for businesses than individuals. They require that a security be offered up as collateral on the account in exchange for cash. We also use CC limit to run our business”.

“Banks offers decent amount of Rate of interest which is more likely for every SI’s and partners in India”, he added.

Harinder Salwan, Tricom Multimedia

Harinder Salwan, Tricom Multimedia added in the same and said, “The financing options that are available are Cash Credit and Overdraft against your stock and or customer outstanding that a bank or third party financing agency offers to the channel partner in the IT business. There are other options like Letter Of Credit and or Bill Discounting which are normally used by some when the transactions involved are of high value or imports and these are again offered by banks and third party entities”.

“We belong to an industry where we sell software and today over 90% of the business is done under license mode and software being now treated as OPEX and no longer CAPEX and there being no stocks the financier is left with the only option of funding on out-standing’s and not on stocks as most of the business is back to back order processing”, he added.

Sanjay Walia, CEO, Jet Age Computers

Since 1989, Chandigarh based Jet Age Computer Traders also shared his financing options. Sanjeev Walia director, Jet Age Computer Traders said, “Financial options apart from bank are credit limit with national distributors, importers, private financiers and ofcourse your goodwill. The best way to get fund for the business is CC limit from the Banks. If is really very effective and reliable for any businessman.  Financial backup plays crucial role in business as it is considered as the back bone of any venture”.

Jiten Mehta, Magnamious System

Jiten Mehta, Magnamious Systems, Mumbai said, “ Today it is becoming very difficult as the customers have started taking more time for the payment and to run the business and execute the different sizes of the deal finances are the must or it will straight away hit your top line and bottom line too so financing options are must. We are using banks and the vendors’ financial institution for financing”.

“Today every finances you want to raise you need to give some security collateral’s and guarantors and these are becoming difficult and if your debts blown up then again the finances becomes very difficult so you need to even maintain your balance sheet very well decorated to get the finances at good prices also”, he added.

Personal savings, loans from relatives

The second option is using self generated funds assets of family and friends for growing the business. When tested business model under market conditions and only need a little more resources for optimizing the business or for reaching break even, then asking family and friends might be a good financing option for any businessman. But also be aware that investments from closest friends and family might worsen if business fails. Therefore, asking for a loan under friendly conditions which you will pay back to friends and family. Partners and SI’s depend predominantly on internal sources of finance (personal savings, loan from relatives, and loan from local money lenders) than that of institutional financing by banks and other financing institutions.

Limesh Parekh,CEO, Enjay IT Solutions

Talking about the same, Chennai based Limesh Prakash, CEO, Enjay IT said, “Funds plays an important role to run any business. Partners and SI’s use lots of different options to raise their funds. We (Enjay IT) usually prefers Self generated funds and from relative and friends. We also go with funding from Banks as well in the form of CC limit. It is very slow process if funding is available easily and then things go on faster ways”.

Sampath Kumar, CEO, Value Point

Bangalore based Sampath Kumar, CEO, Value Point shared his funding option and said, “Current trend is CAPEX to OPEX, transactional to contractual, and everything as a service and business opportunity / possibilities is in abundance. Hence fund raising/ financing options are critical to embrace growth in any business. First preference is of raising funds is our own reserve / accruals followed by our bankers, Channel financing options from OEM’s / Distributors, vendors and NBFC’s to say the least in sequential order”.

Sulalit Gupta, Director, Global Systems

Talking about the same, Chandigarh based Global Systems working from past 25 years in the field of IT and if we talk about their financing options, they also prefers self generated funds for their business. Sulalit Gupta, Director, Global Systems shared his views on the same and said, “We are 25 year old in Chandigarh working in the field of IT. There are many different options to raise funds. But we prefer self financing options or sometime we raise funds from our relatives and friends”.

One of the major aspects for not experiment other options for raising funds is drop down in IT market due to unethical online practices where the margins becomes very low. In this drop down SME’s cannot afford any interest on different loans offered by banks and funds from outside. This cause, SI’s and partners are bound to save their own money and use their own funds to run their business.

Rajesh Tayal, Director, Computer Touch

Adding into the same, Rajesh Tayal, Director, Computer Touch shared his views and said, “We use our own reserve funds to run our business. As we all know the IT raillery market has drop down and with the thin margin we can’t afford the rate of interest offer by bank. Online is the major challenge behind the same. So using our own fund is the only way to survive in today’s world”.

Funding from Vendors

Like the other financing options, Funding from Vendors plays an important role in raising funds. Sometime it is not the direct fund, but it could be in the form of credit limit, discount on cash payments, trips for the partners and funding for the advertisement. Funding from the vendors depends on achieving targets given by vendors and the market value and reputation of any SI’s and partners.

Shiv Modi, Director, Trisita Marketing

Talking about the same, Shiv Modi, Director, Trisita Marketing Kolkata said, “Raising fund is the main aspect while doing any business. As per your performance and the market repo, Vendors give credit line for the payments. Usually we use our own funding but also we get credit line/ channel financing from vendors. We don’t get direct hard cash from the vendors but we gets 40-60 days interest free credit line or sometimes discounting from vendor on cash payments. This is really makes so much difference while running a business”.

Ranjan Chopra, Director, Team Computers

Delhi based Ranjan Chopra, Director, Team Computers shared his views and said, “Money is the lifeline and without cash business will die. It’s critical to keep enough reserves pro actively and not only in times of need.​ We use leasing and financing options from IBM global finance, Dell channel finance, HP financial services and bill discounting from various banks like Axis bank. Also, vendors can give extra lines of credit and longer credit period”.

K.L Lalani, CEO, Lalani Infotech

Adding into the same, K.L Lalani, CEO, Lalani Infotech, Kolkata says, “Raising funds from the market/ Vendors helps partners to adopt the latest solutions which not only help them boost productivity, but also help level the playing field in the industry. From a partner perspective, it brings in an added potential to boost sales, and foster long lasting relationships with their customers”.

“Talking about our raising funds strategies, we gets one month credit limit from the National Distributors. I don’t think any Vendor provides direct cash but yes, channel partners get others indirect benefits from the Vendors. We also raise funds from the open market and our own funds for the business”, he added.

Government’s Contribution in raising funds?

Various central and state government schemes have been rolled out supported by government bodies, banks and financial institutions to infuse funds in this sector. Central government bodies such as the National Small Industries Corporation which assists small units by forwarding requisite machinery, play an important role. New government has taken initiatives to boom startup business in India with their new startup funding scheme. But there is no scheme by the government which can provide funds for the players who are working from so many years. SI’s and channel community have differ view points on the same.

Shyam Modi, Director, Modi Infosol, Delhi said, “Our new govt. brings new schemes for new startup companies and this will really boom the Indian economy, but I don’t think govt. has any scheme for us for providing funds. Govt. doesn’t provide any funds for any business. And there is any partners don’t aware about the same”.

P.K Sinha, CEO, Astric Computers

Talking about the same, P.K Sinha, Astric Solutions said, “There is no provision in the government for providing funds for vendor and SI’s. Sometimes after signing of MOU govt. might be release some amount. But I don’t think govt. provide any kind of advance or something”.

“Partners have to manage their funds by their own with different financing options like, CC Limit, funds from outside and sometimes through vendor. Astric Solutions work for many govt. projects but there is no provision of raising funds from the government”, he added.

In the end, a company seeking funding options must have in place a team that is convinced that there is a need to consider seeking funding options, either for sustenance or growth. Additionally a good rating reflects an organization’s credit worthiness and that would help determine its probability of meeting financial obligations, be it debt servicing or equity allocation. All this would go a long way in helping solution providers get their required funding without much worry or hassle. The rest like they say is for them to see. Alternative sources of finance can, therefore, step in and assist IT players in their growth and development. They should improve their governance and risk management practices, maintain proper books of accounts, submit correct information to banks and all authorities, and make their operations more efficient and productive to get easier access to finance from banks and other investors. This way the IT sector would become more competitive and efficient and contribution further to the economic development of our country.