If you are a small to medium sized business, in the market for technology or unified communications equipment or a Value Added Reseller (VAR), the next couple paragraphs could save you a lot of heartburn. After 20 years in the unified communications equipment financing industry we see all too often, customers or their sales representatives, get caught up in finding the lowest rate that they completely disregard any other outlier that should be considered in their buying decision.
How Rate Shopping Can Hurt You
Just recently, we had a prospect rate shop after one of our partners provided them our detailed proposal. Their bank offered a rate which was very appealing for a loan on their unified communications equipment they were procuring. Our sales team discussed the different benefits they would receive by partnering with us on a monthly payment option. This included the freedom and flexibility the business gains by choosing our monthly payment options versus a loan. However, the customer was determined to get the best rate because they had great credit. Just months later the customer had called, wanting us to refinance the equipment.
Almost all principals of a Sub S corporation are required to guarantee a transaction like this. When they go through their bank it can affect their personal credit. In this case the bank did just that, and reported the equipment loan on his personal credit. Because the bank did this, it had dropped his credit score from 746 to 671 due to his debt to income ratio. Also, the equipment and loan were now on the company’s balance sheet. This was making it very challenging for them to get approved for another loan to procure more equipment for the business.
How to Look Past the Low Rate & Consider Value in the Long Run
As a business or VAR, you must be strategic and look past the blinding flashing light of a low rate and consider the business in a bigger picture. Ask questions that can drive you to the best procurement choice for the equipment. Questions like, “Do I want to own this or do we just want to use this equipment?” “Do we need to have flexibility and options if our business climate changes?” or “Do we want to have a depreciating asset on our balance sheet?”
Customers and partners are trained their whole careers to go after the lowest rates because they think it is better. This client is a perfect example of chasing a low rate and not understanding the entire effect on his organization.