IBM project financing attracts SMBs

IBM's project financing service is proving popular not only among large companies, but also with the small-and-midsize business sector. The service provides a customer with complete financial backing from IBM for an entire IT project, from the design phase to system deployment.

About one-third of IBM's project financing business is currently with SMBs, and the business is growing, says Paul Foulkes, vice president of worldwide project financing with IBM Global Financing. In some countries, such as France and Italy, IBM's financing deals are predominantly with SMBs.

Foulkes says IBM might define some large companies as SMBs for financing purposes. While some large firms have sophisticated business models in place, others might not and would benefit from the financing, says John McArthur, group vice president and general manager with IDC's information infrastructure division.

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IBM's project financing service is proving popular not only among large companies, but also with the small-and-midsize business sector. The service provides a customer with complete financial backing from IBM for an entire IT project, from the design phase to system deployment.

About one-third of IBM's project financing business is currently with SMBs, and the business is growing, says Paul Foulkes, vice president of worldwide project financing with IBM Global Financing. In some countries, such as France and Italy, IBM's financing deals are predominantly with SMBs.

Foulkes says IBM might define some large companies as SMBs for financing purposes. While some large firms have sophisticated business models in place, others might not and would benefit from the financing, says John McArthur, group vice president and general manager with IDC's information infrastructure division.

With any project financing deal, customers want to lock in the amount of money the project will cost and retain some flexibility on achieving milestones, Foulkes says. A milestone is an agreed-upon point in the project when some goal is met - for instance, getting a specified number of users up and running on a new application. In that example, IBM would build some "wiggle room" into the milestone so that if, for example, 80 instead of the agreed 90 users had the new software, the customer could still sign off on having reached that stage.

Having milestones established helps keep development on track for users and IT suppliers. Milestones "introduce a little more certainty and add a lot more discipline," Foulkes says. Once a company has signed off on a milestone, it needs to pay IBM the agreed amount in relation to that achievement so IBM can pay the IT suppliers.

"There's an old phrase - approved but not funded," says IDC's McArthur. "It's hard to get approval for IT projects. Project financing allows the match of payments to future benefits."

He says IBM service is a "brilliant approach," not only reducing the risks inherent in high-tech projects for customers, but also a way of providing competitive advantage for IBM. If Big Blue introduces the concept of project financing when a customer is considering an IT project, IBM's "traditional [financing] competition might not even be invited to the table," he says.

Should a customer decide midway through a project that he wants to call a halt to it, IBM will terminate his funding, Foulkes says. The customer will pay only what it has seen value for as measured by the milestones. That flexibility is likely to give customers more confidence and make it easier to get IT projects approved. "If you're able to go to the CFO and say, 'By the way, you don't have to pay a nickel if you don't see a benefit,' they'll say, 'Yeah, I'll take the risk,' " he says. The only risk for the customer is in allocating staff to the project.

One of the inhibitors to CEOs taking on project financing deals for their companies is a sizable mismatch between the cost of the project and the time it might take for an organization to reap financial benefit from it. "It may take years to see any payback," particularly in relation to CRM or ERP projects and government initiatives, such as e-passports and electronic tolls for road systems, Foulkes says.