Barbara Sprenger, CEO of Satellite Telework Centers, wasn’t thinking much about obtaining financing while putting together the business plan for her startup, which is building and renting office space in suburbs of large cities. She is now, however.

“(Financing) is something that you think is going to be a no-brainer in the whole sphere of what you need to do as a startup,” she says, “but it’s becoming more of a major piece now.”

The entrepreneur encountered difficulty, despite the fact that she founded and ran a successful business, Mountaingate Engineering, for nearly a decade before selling it to Nordson Corp. in 1993. While both she and a co-founder are willing to provide personal guarantees for loans, finance sources are still balking, she says. Consequently, she is working more with individual vendors to lease gear such as phone systems and paying higher-than-expected rates.

“Historically, businesses haven’t considered funding of assets as an issue. It’s come secondary to the provision of the solutions. But that’s changing now,” says Matt Mills, chief marketing officer of smartfundit.com, which bills itself as online marketplace for businesses that want to finance the purchase or sale of technology: software, software-as-a-service, hardware and services, as well as other assets and equipment.

Lease financing is more attractive than outright purchases or traditional loans for many companies, especially in a shaky economy. It allows them to maintain larger cash reserves to get through lean times. They can avoid hefty down payments and finance up to 100 percent of a purchase, possibly including such services as shipping and installation. They can also avoid tapping bank lines of credit.

Despite these advantages, demand for lease financing is falling, with more companies simply extending the life of their current technology assets in order to avoid taking on any more monthly payments, says Ralph Petta, vice president of Industry Services for the Equipment Leasing and Finance Association (ELFA).

Lessors are subject to the same harsh macroeconomic conditions and financial uncertainties as other companies and thus are scrutinizing their potential customers far more closely, says Petta, who notes that credit approvals reached a historic low (65.2 percent) in ELFA’s January index. “It’s a difficult time for a lot of industries, including ours. Home foreclosures don’t affect us as directly as some other sectors, but our members are unable to extend credit as they have in the past.”

As companies hunker down for what looks like an extended recession, large technology vendors like IBM, Oracle, Microsoft and Cisco are in a better position than most to withstand the financial fallout. Financial analysts are quick to cite their strengths: global reach, well-known brand names and solid balance sheets, which allow them to buy struggling competitors and/or interesting startups on the cheap.

Previous Page Next Page