In Part 1 of this series, based on a recent webinar conducted by AAJ and Dean Morrison, national business development manager at Summit Funding Group, we addressed the basics of IT project-based financing. This financing is intended for IT projects involving hardware, software, training or solution customization, and it is secured by the anticipated cash flow from the completed project.
With investment in equipment and software slated to reach an all-time high of $922 billion in 2015—approximately 60 percent of which is expected to be financed, according to Morrison—it is clear that project-based financing will remain a viable financing model for businesses looking to make necessary business improvements in a way that won’t wring their budgets dry.
For those who attended the webinar or listened to it on demand (click here to listen to a recorded version), the basics and benefits of IT project-based financing are clear. The devil is in the details, however, so let’s get to the nitty-gritty of how the process actually works.
There are a number of considerations when it comes to project-based financing (i.e., the credit approval process, term length options, and even the alternate option of traditional bank financing) that organizations must understand before moving forward.
As we continue this series, we follow Morrison as he leads us through the inner workings of the project-based financing process. Let’s take a look …
- Credit process: The credit application process will differ depending on the expense of the technology project, Morrison said. For example, projects that fall between $100,000 and $150,000 are typically subject to a relatively simple and easy credit approval process. In fact, in many of these cases, a credit application isn’t even required; all that is required is a quick scan of the company’s D&B and PayNet credit scores, which will be run through the financer’s credit scoring process.
- Term length options: “When I mention ‘extended terms,’ a lot of folks think that the maximum term for which a project solution can be financed is 36 months, but that’s not the case at all,” said Morrison. For example, projects are known to be financed for up to 60 months, with the option of extending projects between $100,000 and $500,000 up to 72 months and projects over $500,000 up to 84 months. This makes new project acquisitions very achievable and affordable for companies with strict budgetary limitations.
- Bank commensurate rates: “One of the issues that we are faced with here in the equipment leasing industry is that we routinely compete with banks,” said Morrison, who explained that a common misconception is that banks have lower rates than leasing companies. Today, however, financing rates are extremely competitive and, in many cases, as low as traditional bank financing, he said.
- Matching monthly expenses to monthly ROI: “One of the most important aspects of selecting a financing alternative for your technology project is understanding what the monthly payment will be [which enables you to] apply that against the return on investment received,” said Morrison, who stressed that, in many cases, companies’ monthly ROI far exceeds their monthly cost to implement the technology solution.
Want to learn more about project-based financing? We encourage you to listen to the webinar in full by clicking here.