Wednesday, October 8, 2008

Economic Chickens Coming Home to Roost

Credit Crunch putting deals on hold.

Solution Providers Say Credit Crunch Putting Business On Hold

By Craig Zarley, ChannelWeb
11:00 AM EDT Wed. Oct. 08, 2008

Solution providers report that the credit crunch is starting to impact their business as customers either cancel or delay projects because of the inability to secure financing.

Wednesday's decision by the Federal Reserve to cut its key federal funds lending rate by half a percentage point to 1.5 percent and its discount rate by the same amount to 1.75 percent is expected to have little immediate impact on the situation. Solution providers say it's not the cost to borrow, but the availability of credit that is impacting the market.

"This week alone I've had two deals that the customers would have financed themselves through a bank but they were turned down," said Manuel Villa, president of VIA Technology, a San Antonio-based solution provider. "They then had to look for leasing options, but the leasing companies told them they couldn't do the project. Even leasing companies are getting tight with their approval process. That tells me that credit is tight all over."

Villa said the deals were relatively small, about $20,000 each, but the customers were well-established professional firms that have been in business for more than 10 years.

"If I've got two deals that are put on hold because of lack of capital, there are certainly some other folks that are seeing the same thing right now," he said. "This is a real problem now, but I hope that it is temporary."

Mark Singh, president of Abacus Computers, a Midland, Texas, solution provider, said he, too, has seen several projects that he expected to go through put on hold in the past few weeks. "Nobody has told us [that they can't get financing], but I suspect that some deals are being slowed down right now," he said. "Some projects that we expected to go through just aren't going. I think the credit crunch is slowing down some business."

Most well-established solution providers say they have yet to seen any restraints put on their lines of credit either from distributors of finance companies such as GE Capital. But they agree that anyone that is new to the business or lacks a sound business model is vulnerable in this economic climate.

Villa, for example, says a diversified business model will help him mitigate the impact of the credit crunch, noting that his public-sector business is still strong. "The public sector works with budget cycles a year in advance," he said. "Once the funds have been allocated for a project, they go forward with it."

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