How financing can help channel partners navigate higher IT costs

Jim Moschos, national sales director of technology finance at Mitsubishi HC Capital Canada Canadian businesses buying servers and IT infrastructure are facing a difficult combination of higher hardware costs, currency pressure and continuing uncertainty in the technology supply chain. The result is serious sticker shock for many SMB customers, with some putting off infrastructure projects or looking for ways to reduce the immediate impact of a refresh. But delaying technology investments indefinitely may not make the problem go away. As Jim Moschos, national sales director of technology finance at Mitsubishi HC Capital Canada, puts it, “Kicking the can down the road doesn’t really help because that can could become a dumpster.” On this edition of In The Channel, Moschos discusses how financing can help managed service providers and VARs keep projects moving while giving customers more manageable payment options. He explains how assignment models can move the underwriting burden away from the solution provider, allowing smaller channel firms to pursue larger opportunities without taking on unnecessary customer credit risk. Moschos also discusses asset buybacks, which can use the residual value of existing equipment to help offset the cost of a hardware refresh. And he highlights an under-discussed opportunity in software and cybersecurity: using financing to bridge the gap between vendors offering discounts for three- to five-year upfront commitments and SMB customers that are more comfortable with annual operating budgets. For channel partners, financing is not simply a way to lease a server. Used strategically, it can support cash flow, protect margins, improve the customer conversation and create new ways to structure infrastructure and software deals. Read Full Transcript Robert Dutt: Hello and welcome to In The Channel from ChannelBuzz.ca, bringing news and information to the Canadian IT channel community for the last 16 years. I’m Robert Dutt, editor of ChannelBuzz.ca, and your host for the show. Today we’re talking about money, and specifically, how to find it and use it when the macroeconomic picture gets messy. Right now, Canadian IT buyers are facing a serious squeeze. The weak Canadian dollar, tariffs, and a global memory shortage have driven up the cost of hardware. And that means serious sticker shock for customers, especially in the SMB space. But freezing IT projects and waiting to see what happens isn’t a great strategy. Joining me to discuss how solution providers can use financing to navigate these choppy waters is Jim Moschos. He’s the national sales director of technology finance at Mitsubishi HC Capital Canada. We discuss how financing has moved way beyond just leasing a server, how partners can eliminate their own underwriting risk, and how to use financing to capture multi-year software discounts for clients who only have annual budgets. Let’s get right into it. My chat with Jim Moschos. Jim, thanks for taking the time. I appreciate it. Jim Moschos: Well, I appreciate being here, Robert. Thank you. Thank you for the invite. Robert Dutt: To start with, let’s take a look at the macro environment. Canadian buyers are currently facing a variety of things going on. It takes me back to the very meme-able movie Airplane! scene — it looks like I picked the wrong week to quit sniffing glue, to borrow from the film. We’ve had the tariff situation, the Canadian dollar hovering around $1.40, and prices in general being driven up by the global memory shortage situation. From your vantage point, how is all of that impacting IT purchasing behavior, especially in the SME space right now? Jim Moschos: Yes. What we’re seeing is two dynamics in terms of customer types and their responses. We have a few that are playing a wait-and-see game, which means they’re going to be waiting a long time. From the dynamics you mentioned, I think if, hopefully, God willing, there’s an end to the war soon, I think we’ll see the U.S. dollar subside, as right now its main strength is due to safe-haven demand. But the other items you mentioned in terms of trade negotiations and supply shortages, that’s not a near-term solution. The negotiations will probably last well into the end of this year, if not beyond. And the supply shortage, they’re talking about 2027 through possibly 2030, depending on how strong the demand is. The people that are putting projects on hold, I think they’re going to have a bigger hill to climb later on if they’re thinking that prices are going to subside. On the other end of the spectrum, we have the types of clients that are wanting to lock in the pricing now. Rates right now are still relatively low. The Bank of Canada’s holding rates, our swap lines are relatively stable. I think taking advantage of the lower rate environment, and also coupled with pricing certainty — even though the prices have gone up, they could go up even higher — so we’re seeing a lot of people locking in the orders, leveraging financing, for example, as a way to be able to absorb the increase within a structured payment plan that makes sense for them. And we’re certainly seeing some prominent solution providers advising clients, and vendors as well, advising would-be customers to spec out what you want early, get it for the life of the machine, don’t bet on this changing in the short term, and don’t bet on it getting better. So that’s another factor. I think kicking the can down the road doesn’t really help because that can could become a dumpster. Robert Dutt: For MSPs and VARs sitting in the middle of this, how do you see this volatility affecting their product pipelines, their own cash flow, those kinds of things — basically running the business? Jim Moschos: For those that haven’t entertained financing before, because only a small percentage of IT hardware and software is actually financed still to this day, relatively speaking, in comparison to other industries. I think that having conversations with lenders in terms of understanding their business model and their go-to-market strategy, and trying to identify a financial vehicle that works for them in a way they can optimize their cash flow. There’s also things that can be done creatively, that if they’re investing in product, for example, or used to fulfill certain contracts, there’s things we can do in terms of possibly taking a security interest or assignment of those contracts. So the VAR isn’t actually carrying the entire burden of the underwriting themselves. We can actually leverage it, potentially, the end user. But then again, that depends on the situation as well as when it needs to be further investigated, but there are potential solutions that we can look into. Robert Dutt: I wanted to pull on that. It’s funny that you mentioned that the usage in technology, particularly through the channel, is lower than you see in other industries. Certainly, I hear regularly from vendors pushing on their captive financing arms. I hear from the distributors on what they’re able and willing and wanting to do in terms of financing. There’s yourself and your peers who are coming at it from your point of view as pure-play finance companies. What is it that you think has historically driven that lower-than-one-might-expect rate of usage of financing in tech compared to other industries? Jim Moschos: I think traditionally, people have high relationships with their key contact at an organization. Typically, it’s in the SME within IT that they’re used to going, understanding, solving a project. And they would then get the capital funds allocated, then strike a PO, and then the PO will be fulfilled. That person that they’re talking to may not necessarily be well-versed to position financing within the organization, coupled with the fact that the VAR themself might not be providing those conversations. What is required is to have conversations with broadening their contact base within their accounts, talking to people within finance, and having those conversations. We try to educate our partners in terms of having those conversations. And if they don’t feel comfortable, we’re more than happy to have those conversations with them, to their customers, so we can help position the benefits of payment plans. Robert Dutt: I think a lot of solution providers might think of tech financing as something they offer to the end user, to lease a server, or lease a solution, say. But as I understand it, you guys work directly with the channel on supply chain as well. You did a little bit of this, but can you break down a bit more on how you historically have worked with solution providers? Jim Moschos: Not necessarily — that was a one-size-fits-all. We have a myriad of financial offerings. It depends on what their go-to-market strategy is and where the payment points are for themselves or for their customers. There’s a complexity spectrum going on. I guess on the simple end of the spectrum, we can offer basic financing solutions for their end users, whether it’s capital lease, loan, operating lease, what have you. And on the other end of the spectrum, we can get into more complex assignment models, where we would take assignment of their documents to their customers and underwrite the end users and monetize either the entire agreement or a portion of the agreement. And then you have solutions in between, whether they’re bundled solutions, pass-through, we get into some guaranteed residuals, things of that nature. So again, there is a myriad of ways we can go about it. It all depends on the situation, the unique situation of the VAR, what they’re trying to accomplish. Robert Dutt: Obviously, this is an ecosystem that’s very concerned with the fact that it is an ecosystem. When a solution provider brings you into a deal or uses supply chain financing from someone like you guys, how does that change the relationship with the vendor? They’re ultimately selling to the customer and perhaps the distributor that’s facilitating sitting in the middle there. Jim Moschos: I think it enhances it. In terms of the relationship, I think it gives the vendors and the customer possibly some comfort that they are a small and mid-size VAR, that they have somebody, for me personally, for our partners, to have somebody the size of Mitsubishi with a strong balance sheet supporting them. I think it gives individuals that kind of comfort. Robert Dutt: Let’s talk about the situation today. Basically, how can Canadian solution providers use some of the financing mechanisms available to them right now to shield themselves from currency fluctuation, from supply chain volatility, from all this madness that’s going on in the world? Jim Moschos: By leveraging financing, I think it gives these solution providers pricing certainty. It allows them to lock in certain payment plans and rates over a period of time, or the useful life of the product. If they are looking for some sort of short-term financing or longer terms or more flexible options, to opt for operating leases or provide low payments with a good amount of back-end flexibility, depending on if they want the ability to trade up or hedge against technology obsolescence, we can offer operating leases to help again with that pricing certainty, at least in the short term. Another thing that’s kind of where we’re seeing some good traction over the last little while, and what’s overlooked, is the financing of software. We’re seeing more and more organizations opting to finance their, let’s say, three-year, five-year cybersecurity licenses, for example, where you have some OEMs that are offering some attractive discounts for multi-year agreements. The problem there is that they want their money upfront. You might be used to paying $100,000 a year for a cybersecurity license. The OEM might come to you and say, “Instead of paying $300,000 the next three years, we’ll give you an offer of $260,000,” for example, and you’re thinking, “That’s great. However, I don’t have — like, I only budget $100, I don’t have $260 now.” And where we kind of help bridge the gap, where we’ll put together a three-year agreement and the interest is really nominal to the point that they still realize a substantial benefit from that. It’s kind of a win-win in a situation where the OEM gets their money upfront and the VAR gets that pricing certainty and that discount. We’re seeing more VARs, more end users financing these types of software scenarios. Robert Dutt: When I’m sitting across the table from an SMB customer as a VAR, MSP, owner or salesperson, and they’re having serious sticker shock about a hardware refresh in particular, how do I change the sales conversation? How do I use some of the financing that’s available to soften that blow, redirect the customer’s mindset away from that as much as possible and just kind of get to the yes? Jim Moschos: If they currently own the assets, we look at ways that we can soften the blow. We could actually look at acquiring the assets that are unencumbered and put that towards the cost of the new acquisition and reduce the payments. We also look at ways of structuring the payments and possibly doing step payments where they might not have the money in the budget this year, but they could have more budget next year. We could structure a payment plan that is more acceptable for them and their cash flow and their budgeting. We could also look at, again, like I mentioned before, potentially doing operating leases, which is on the technology side with flexibility in the backend, lowers their payments, which again provides an easier entry into doing a refresh. Robert Dutt: The other side of this, I guess, for channel business owners, for VAR, MSP founders, owners, principals who are listening to this and trying to plan out their hardware strategies amidst all of these various uncertainties, what’s your biggest piece of advice on how they should be managing their capital in this moment? Jim Moschos: Based on what we discussed from the top of the call in terms of the macro environment, I would highly suggest trying to preserve cash, look at financing models, have those discussions early with their financing partner, try to identify what model makes most sense for them, whether it’s capital leases, a loan structure, operating leases, depending on what the use is for the product and how long they intend on keeping it, refresh cycle, etc. Don’t discount the possibility of financing software for ones that make sense. Kind of open the lens beyond hardware and look at software as well. Just have those conversations early with their finance partner. I don’t think there’s a one-size-fits-all approach. I think it depends on the unique requirements of the particular partners. Robert Dutt: Last one for me. If I’m a solution provider listening to this and I want to learn more about what Mitsubishi can do to support my business, to do creative things, to help me figure out all of this stuff, where do I go? Jim Moschos: Well, that’s an easy one. They can go to our website at landingca.mhccna.com/tech-finance. We have a pretty robust website, but I’d be more than happy to — if they want to reach out to me directly and have a discussion, I’d be more than happy to take their call or their email. My email is [email protected]. They can email me anytime and I’ll get back to them as soon as I can and have a good discussion with them. Robert Dutt: Jim, I appreciate your taking the time. Good luck with helping channel partners through all this fun stuff. Jim Moschos: Thanks, Robert. Appreciate that. Thank you for having me. Robert Dutt: There you have it, Jim Moschos from Mitsubishi HC Capital Canada. I’d like to thank Jim for his time. I thought his point about bridging the gap on multi-year software and cybersecurity deals was quite timely given the circumstances. If your vendor is giving you a major discount for a three-to-five-year upfront commitment, but your customer can only stomach annual operational expenses, bringing in a finance partner to take the upfront hit while you secure the margin and protect your customer is a brilliant way to solve the problem for everyone involved. Thank you, as always, to all of you listening. If you enjoyed the show, please do follow or subscribe. We’re on Apple Podcasts, Spotify, YouTube, and pretty much everywhere else you find podcasts. Ratings and reviews are always hugely appreciated. Until next time, I’m Robert Dutt for ChannelBuzz.ca, and I’ll see you in the channel. Bye.