Financing a move to the cloud

As most SMEs are now well aware, cloud computing can be a powerful business tool.

Thanks to a patchy economy and tight cash flows however, the cost of unlocking the cloud’s benefits can, for some, put it out of reach.

Migration and project expenses, for example, create upfront costs that must be met. Yet, while the cloud is in some senses ‘new’, not much has changed when it comes to financing and business objectives.

For most businesses, the aims remain simple:

1. The ability to manage costs

A low cost base is an important objective for companies wanting to ensure both success and survival. It’s one of the reasons that the cloud is so attractive.

2. The ability for an infrastructure to grow

Businesses want systems and services that can scale with need and develop with growth.

When finances are tight, these goals can be difficult to attain. Yet it’s critical that they are. During the GFC, for example, some businesses found that – as a result of less investment in IT infrastructure – they ended up with higher than necessary costs when the economy recovered.

The good news is that IT providers are aware of the challenge that can be faced by SMEs wanting to transition from traditional to cloud services, and many have attempted to put solutions in place.

Meeting cloud switching costs

One available option is a business loan or overdraft that allows your business to smooth its upfront costs across the period of your cloud arrangement.

These can be provided through common channels such as banks or credit unions, and your business can choose whether to involve a lender directly in the cloud arrangement or keep them at arm’s length.

Another option – sometimes used by businesses that are simultaneously making equipment or other purchases – is to use a financier. As part of these arrangements, financiers often allow for the inclusion of ‘soft’ costs, such project and migration expenses, within agreements.

Partnerships

Most IT providers will have relationships with lenders and financiers that you may wish to exploit.

Deciding whether to use your own credit source or one proposed by your IT provider is a case-by-case call. The advantage of turning to an IT provider’s partner is that they’re likely to have a deep knowledge of the IT product in question. On the other hand, you might conclude that it’s best to approach a lender with whom you have an existing relationship.

What to ask for

SMEs can sometimes struggle when it comes to finding finance, however, anecdotally, small banks do appear increasingly able to lend.

Yet as with any credit arrangement, it can still be a case of ‘if you don’t ask, you don’t get.’ So be sure to negotiate when it comes to:

Honeymoon periods

Some credit providers will still offer honeymoon arrangements, so be sure to investigate your options.

These can be powerful incentives for businesses that want the cloud but would prefer to wait before incurring the full cost of their solution.

Interest rates

You don’t need me to tell you to shop around when it comes to rates. But be aware that some credit providers will have different levels of understanding and comfort when it comes to financing cloud arrangements, which can affect the rates they’ll be prepared to offer.

Transfer of ownership

Arrangements regarding ownership of equipment and assets can be complex, so pay special attention to transfer conditions in any agreement and be sure that they suit your needs.

Summing up

For SMEs, cloud computing helps to reduce costs, boost productivity and increase mobility (as well as a raft of other benefits). But without the ability to meet the costs of a cloud transition, they’re benefits that some businesses can’t unlock.

The upside is that financing options for IT customers are more flexible than they’ve been. Be sure to include them in the mix when constructing your cloud equation.

Dave Stevens is managing director of managed IT services business, Brennan IT. For more information visit www.brennanit.com.au.