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Who’s carrying the can?

As banks and other financial institutions tighten their lending policies, access to funding is becoming more difficult for security installations. Hi-Tech Security Solutions wanted to find out if distributors/systems integrators/installers are self-financing projects or whether they are able to secure finance for customers through the traditional routes.

As banks and other financial institutions tighten their lending policies, access to funding is becoming more difficult for security installations. Hi-Tech Security Solutions wanted to find out if distributors/systems integrators/installers are self-financing projects or whether they are able to secure finance for customers through the traditional routes.

“Since the security distributors understand the needs of the clients and the industry we are in a position to facilitate the financing process more effectively than the banks. We also have a vested interest since we want to sell the products,” said Stanley Henning, services director at Security Warehouse.

Banks and financial institutions are becoming more risk adverse, specifically with regard to technology, since they have had their fingers burned in the past. As products age, they require servicing in order to continue working. However, the end user often becomes frustrated with a product that is no longer operating according to spec and could be disinclined to continue paying for the product.

Mel Labuschagne, MD of Reditron, said: “Some companies have recognised the impact of our recent tough economic downturn and the negative bearing that this has had on product sales. This has given them the opportunity to develop tailored and cost-effective financial solutions for their clients, thereby assisting in stimulating growth within the security sector whilst simultaneously promoting their own (now more affordable) product offerings to their clients.

“Their clients can now reinvest their capital into their core business and utilise this for revenue-generating activities instead of being tied up in depreciating assets. Furthermore, companies can also incorporate maintenance plans in deals to assist the client in upkeep of equipment, thereby creating an additional revenue stream for themselves,” Labuschagne added.

Mel Labuschagne, MD of Reditron.

Henning noted, “Installers and integrators are struggling to take on projects because of costs, as large projects place a huge burden on their cash flow. Payments are not always made on time, which can cause an installer to go bankrupt in worse case scenarios. However, financing security projects is driven by the following key factors:

* Financing the security products will conserve the client’s cash flow.

* The client will derive some tax benefits.

* We offer 100% finance – no deposit.

* Better quality products can be bought.”

Renting on CAPEX

“Finance packages give customers a competitive advantage, allowing them to keep up to date with the latest technology on offer without it making a dent in their CAPEX budget. Many companies can also structure financing payments to accommodate budgetary and cost constraints, making it an affordable solution for a growing business,” said Labuschagne.

“Operating rental agreements often do not require balance sheet disclosure, and hence will not affect the financial gearing of the company. In addition, it will have a marginal impact on the return on assets managed ratio. This option circumvents installers and integrators from losing out on big projects.”

Most security technology and its software needs to be updated regularly to remain effective. By opting for a rental contract, end users are assured that technology updates will occur regularly at no extra cost to them. In addition, regular scheduled maintenance will ensure that all products are in optimal working order and that any problems are addressed and amended quickly.

Could one of the problems possibly be that there are too many installers in the market? “The security market is still going strong and there will always be a demand for proper trained, certified and competent installers and integrators,” said Henning.

Labuschagne believes that the market is inundated with entry-level installers, but that we are losing a number of high-level, professional system integrators who have the technical knowledge to support large-scale installations.

So why are profit margins so low? “Profits have been decreased significantly as a result of competition, but more so due to the lack of big projects in the market. End users are aware that their spending power is in demand and utilise this to their advantage,” said Labuschagne.

“In the market area where Security Warehouse and our installers play we do not fight price wars, but rather concentrate on quality, low cost of ownership and satisfied clients,” said Henning.

Stanley Henning, services director at Security Warehouse.

Getting the bucks

Henning said that financing requests, in terms of assistance with completing application forms and undertaking all the checks required, are handled by the company, to assist end users and installers.

“Generally, the normal credit criteria documents will need to be produced for the respective financing company. After the applicant gains approval, then the contract will be drawn up and the end user is able to pay much smaller, more affordable monthly instalments rather than having to obtain finance for a large upfront payment,” said Labuschagne.

It is critical to have a healthy relationship with your financial institution if you want to acquire finance. With the tightening of bank lending policies, many companies are utilising financial partners such as SASFIN, Spartan and Merchant West.

The length of time taken before finance is granted varies, depending on credit history, the project risk profile and the amount which needs to be secured. “Finance can be approved within five business days. However, this may vary depending on how long it takes to receive all the necessary documentation,” said both Labuschagne and Henning.

“As with all financing options, there is a risk involved. However, parties applying for finance are pre-qualified to ensure that such risk is reduced. When we are looking at these joint financing ventures in the security industry there is a mutual sharing of risk between the bank and the distributor but the potential for more business generally counters this danger,” Labuschagne pointed out.

Henning said that the bank is at risk if the end user defaults on or stops payment. Since the stock is already paid for, the distributor does not carry any risk. The only risk period for the distributor is up to the point when the equipment is installed and the main payment is approved by the bank/broker after inspecting the site.

What’s available?

There are many options available for financing a project. Henning listed: No deposit, fixed instalments over fixed period; or small deposit, small initial monthly payment with an annual escalation.

“Most financing options do not require deposits, however, they generally have a minimum amount required for finance (for example, R50 000). The full amount is financed over an agreed period with an attached escalation fee and the repayments are then calculated at a monthly, quarterly, half yearly or annual frequency. Reditron offers finance options with few limitations and funding structures devised to meet our customers’ individual needs (including early terminations for upgrade plans, refinancing capabilities and competitive pricing solutions),” said Labuschagne.

Contacts

Reditron, +27 (0)11 887 1548, www.reditron.co.za

Security & Communications Warehouse, +27 (0)12 653 1005, www.securitywarehouse.co.za

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