Funding the future of technology

By Kevin Flowerday – Head of Technology Finance – United Trust Bank

The speed of change in technology is staggering. The iPad has only just had its fifth birthday and yet it has already become firmly embedded as an essential tool in many homes and businesses. These days, companies are only too aware that a lack of investment in IT can leave them at a competitive disadvantage. New hardware and software solutions can help them to adopt more flexible working practices such as mobile working and provide greater benefits with regard to managing costs, increasing their speed of production or response or just generally improving connectivity and integration. Staying on level terms with the competition means having an efficient and reliable IT system. With the replacement time for IT hardware decreasing and constant developments in software and IT storage including advancements of the ‘Cloud’ and ‘Big Data’, businesses are finding themselves reviewing their IT requirements more regularly than ever.

However, like everything else in life and business, technology comes at a price, and few companies find they have a substantial pot of money available with which to upgrade their IT systems every four or five years. Even those with some cash in the bank should ask themselves if that money is best employed paying up-front for a depreciating asset which may take months to start returning on the investment.

Increasingly businesses are viewing their IT systems as they would any other substantial asset which will eventually be replaced and choosing to pay for it over its lifetime rather than in one lump sum at the point of purchase. For example, if you’re investing in a new CRM system you’ll most likely have a marketing expert running it. You wouldn’t pay them five years’ salary on day one, so why would you do the same with the CRM system? Companies should be looking to pay for their IT systems over the same period it will be delivering benefit.

The pace at which technology changes, and the pressure on companies to stay on top of their IT requirements, means that leasing has become increasingly attractive. Computer hardware, including desktop, mobile and server technology as well as networking equipment, software and the associated services can all be funded over the equipment or software’s useful lifetime. From a finance director’s point of view, it can be an easier investment decision to make when the costs associated with the project are incurred as the increased performance is delivered, rather than at the outset.

There are various ways of financing hardware and delivered software solutions. In both cases there’s an ‘asset’ which can be seen as providing security for the loan, even if it’s just a license for a particular piece of software. But what about if the company wishes to move to a cloud based solution?

For many businesses, accessing computing software and data storage through the internet offers several advantages. Flexibility, mobile working, increased employee collaboration with access to shared apps and documents, automatic updates and simplified disaster recovery plans are just some of the reasons why more and more businesses, and especially SMEs, are moving to cloud based computing systems.

Technology research specialists, IDC, predict that by the end of the year a third of all IT infrastructure spending will go on cloud technology. According to their research, by the end of 2015 total cloud spending globally will increase by 21 per cent annually to $32bn (£21.27bn), accounting for a third of all IT spend. The most interesting figure, for those of us working in the technology finance sector in the UK, is that the fastest rate of growth in cloud spending will come from Western Europe, where it will rocket by 32% this year.

Most experts agree that cloud technology will continue to be the must-have technology of the near future. The question asked by many businesses however is this – “we want it, but how are we going to pay for it?”

The options for a business looking to finance a hosted software system have, until now, been fairly limited with most traditional technology finance providers being reluctant to lend against something where the tangible assets, the hardware, make up a small proportion of the outlay. Some businesses have chosen to release the capital tied up in other assets, such as vehicles and machinery, and have used that money for their technology upgrade. But not all businesses have high value, unencumbered assets to refinance to fund their IT improvements.

For the last six months United Trust Bank have been developing a new technology finance division and an innovative new product which gives brokers the tools to enable their SME customers to not only finance up to 100% of the costs of a traditional hardware/delivered software technology solution, but 100% of the costs associated with a cloud based or hosted services solution without the requirement for large, up-front deposits. With this new product, backed by experienced professionals in the United Trust Bank team, brokers will be able to offer their clients a fast and flexible solution.