Financing technology, whether it be IT ( information technology ) assets, or the new kid on the block, solar finance , requires a combination of access to capital and solid expertise . Let’s examine some key options and strategies in tech finance that will provide your firm with the growth potential you need. Oh, and by the way, this pertains to whether you are a user or a vendor of these assets.
Key issues that come into play are valuation of assets, useful economic life (ouch! isn’t that an accounting term?!) and types of financing available in the Canadian marketplace.
Clearly tech financing covers a variety of industries, we’re focusing today primarily on computing and solar industries, but our comments are broadly applicable to a number of other asset types.
One of the key challenges in financing technology is simply the fact that the majority of goods and services provided and utilized by your firms either depreciate rapidly, or , unfortunately slowly become obsolete. There is a great analogy that tech assets are like a mines assets, they are depleted and are ‘ replenished by development ‘. A true analogy!
Financing tech assets must take into consideration the obsolescence factor – a good example of course if pc’s, laptops and servers which easily can depreciate 30% per annum. Creative financial arrangements around these types of assets is critical and we’ll discuss that a bit also.
Software and services, often financeable, are other solid examples of high technology assets that require specific options and strategies. These products are high gross margin to the seller and when financed properly provide both benefits to the user and profits to the vendor/lessor. Factors that drive software financing are upgrade cycles, continued proliferation of PC’c and mobile products into all facets of business, as well as the obvious productivity gains these products provide.
Tech and Solar assets can be either finance or purchased. When these assets are financed key issues for financial and credit scrutiny include interest coverage and cash flow, valuation of the technology re type of financing desired.
In the U.S. Surprising almost half the country’s employed work in IT and other emerging tech areas such as solar, wind, etc. We’re quite sure Canada’s numbers would be too far off that.
For computer IT assets typical lease and other financing terms rarely go over three years… it’s simply a question of the useful life of these types of assets. Solar projects require alternative strategies, since they typically have a longer payback.
Financing transactions in IT and Solar industries tend to be cash flow, and not asset based when it comes to lending and financing transactions. These type of transactions clearly aren’t ‘ asset based lending ‘ in its traditional form. Upgrades are common in computer, they aren’t in Solar.
It is important for both borrowers and vendors and lessor to separate financing from licensing and technology issues – the intellectual property in the asset being financed rarely, if ever transfers to the borrower.
Key options and strategies in technology financing typically include operating leases, providing the user with significant flexibility.
When either financing tech and solar sales, or utilizing and acquiring such assets consider working with an experienced, credible and trusted Canadian business financing advisor who should be selected on the basis of experience, knowledge, and references .