November 18, 2016 | Written by: Julie Jordan
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I recently interviewed Herb Schultz, Portfolio Marketing Manager in IBM Global Financing. Financing offers extra flexibility to all IBM clients but is especially interesting for Watson IoT clients given the incredible acceleration in the space. I was keen to find out about how financing can help companies acquire world class IoT technology faster and more profitably.
Hi Herb, thanks very much for joining me today. What can you tell me about IBM Global Financing?
The largest IT captive financier in the world
Herb Schultz: IBM Global Financing provides clients payment plans, leases, loans and related financial services. It’s the largest IT captive financier in the world. We look at IGF as a strategic partner to the CFO, who can use financing to reduce risk, improve profits and get projects done. We operate in over 60 countries and have done this for 35 years.
Julie Jordan: What are some of the financing services offered?
Herb Schultz: So, we have things like low rate or even zero percent financing. We have the ability to let customers delay a payment. We can let customers pay on a structure that matches the milestones of their project. We also have Asset Recovery Services, a very useful service for clients leasing hardware. At the end of the asset’s lifecycle, you want to refurbish or replace it. IBM can take the asset back and either refurbish it, take parts from it or scrap it. It’s always done in a very environmentally-safe and secure way, the machines are in good hands.
Financing speeds up ROI
Julie Jordan: Okay. So, how can financing speed up ROI when customers are adopting new technologies, like IoT?
Herb Schultz: Let’s pick up on that example. Zero percent financing is about the best you can get, and for credit-qualified customers we’ve got it. So you’re getting almost free money to get your projects done. Also if you’re able to delay a payment, say for a quarter, you can do things like start projects in a calendar year and not start paying until the following year. That can really help customers with short term budget issues. Of course, even in the current calendar or fiscal year, if you don’t have to pay anything for 90 days, you’re helping ROI. What really helps ROI is a good Internal Rate of Return. Tying up all your cash now with a big check, before getting payback from implementation is not ideal. Better to pay as you get the benefit. Then by definition the Internal Rate of Return goes up and so does ROI. Asset Recovery or divesting of equipment with some fair market value at the end also helps with the ROI because you’re not left with some equipment still on the books.
Julie Jordan: It sounds like all this would be extra useful for SMBs where cash flow is less predictable.
Herb Schultz: True. Though these services have value regardless of company size. IBM can finance solutions of $5K or higher, which works for almost any size of business wanting to bring on new technology, new capabilities.
Julie: How good are the rates and terms?
Herb: They are great. As I mentioned, with qualification we can offer below market rates or zero percent financing. Deferred payment plans are also popular. Why spend money now when you can wait for 90 days without penalty? Sometimes we have low-rate leases. An interesting side note – many banks finance with IGF. It tells you something that many banks, even with their great deal of knowledge about the use of money and access to it, come to IGF for their solution financing.
Julie Jordan: Right, that’s a good proof of value. So what can IGF cover? New purchases, upgrades? We have asset and facilities management clients or continuous engineering clients, for example, who want to jump start their IoT projects.
Help with anything IBM sells
Herb Schultz: Anything IBM sells can be financed, and that goes for hardware, software, and services from GBS and GTS. We also finance non-IBM parts of the solution if under a certain percentage. For example, if somebody wants to buy an IoT solution and maybe have some Cisco equipment as part of the deployment, we can finance that too. With IoT, there’s this tremendous amount of data that gets thrown off from all of the ‘Things’ in the Internet of Things – the sensors and devices. It’s very easy to quickly fire up a lot of new devices, to bring them on board. I see IoT implementations as sort of the ultimate scaling challenge. How fast can you grow? Can you keep up with the data? When you have that kind of growth or hypergrowth situation, you want to stay right on top of it. You don’t want to be over-capacitated but you don’t want to be under either. Financing is a great way to manage that. When you’re flush with cash, you might be tempted to buy a bunch of stuff and sit on it for a while, but that’s not a good return on investment. If you have a dip in business but need to bring on a bunch of new sensors, with financing you don’t have to wait.
Julie Jordan: Can you give an example?
Herb Schultz: Yes. We have a client who manages over 20,000 buildings using TRIRIGA. This number fluctuates and can easily go to 25,000 in a hurry, and we can cover that expansion when needed. So it’s that scaling effect that financing can help manage.
Julie Jordan: Great. OK, how about eligibility. Let’s say I’m a small business owner. How do I know if my company is eligible for financing? What are the requirements?
Herb Schultz: Like other kinds of financing, there’s a credit check, but IGF turnaround is fast. Through their IBM reps, clients and new buyers can get a response back usually within a day on whether they are qualified. If a client or new buyer does not yet have a firm plan, they can still find out if they are prequalified through their IBM rep, just like when you shop for a home and want to prequalify for the mortgage. It’s always great to know you’re pre-qualified. Buyers who might not think an IBM IoT solution is possible at the moment can in fact bring it in now and get the growth and competitive benefits, given a financing option. There’s a calculator I recommend browsing on the IGF webpage. It’s not for formal pre-qualifying but it can show examples of financing packages and the effect on cash flow and solution cost. You can also see what the terms might be on a lease or a loan and try out a few example scenarios.
Julie Jordan: Many clients are moving to a full cloud or hybrid environment. How does financing work in a cloud purchase?
Can you finance cloud?
Herb Schultz: Typically, customers pay an upfront annual or multi-year fee for the subscription to cloud-based software, which is then financed back into monthly payments. With longer terms, you get better discounts. But you still get billed monthly, which is how many cloud customers want to pay, and the amount of the discount is large enough to override any small interest rate with the loan.
Julie Joran: That’s an excellent solution. What if someone works with an IBM business partner, can they still qualify for IBM financing?
Herb Schultz: Sure. There are around 1,500 business partners in our ecosystem authorized to resell our financing. It’s good for business partners as well as their clients, because business partners are paid right away vs. waiting for the client billing to go through. This commercial financing is the 3rd type we offer, along with client purchase financing and the asset recovery. In fact, a lot of resellers come to IGF for working capital for their operations and for building inventory. Reselling can be capital-intensive and we help bridge the gap.
Julie Jordan: Again, great coverage. OK, the last question is: how can someone learn more or get pre-qualified?
Herb Schultz: You work with your IBM rep who then contacts IGF and gets the ball rolling. Or learn more by checking our website on ibm.com. There’s a Chat Now function for real time Q&A. And if you don’t yet have an IBM rep, you can contact IGF and someone can set you up.
Julie Jordan: And I will add this contact link if you’d like to speak to an expert about Watson IoT solutions. Thanks very much for your time and insights Herb.
Herb: Thank you, my pleasure.