Microsoft Financing Tightens Rules

Loans from Microsoft Financing will be available only for deals in which Microsoft software and services constitute at least 35% of the cost, under new rules announced May 2009. The restriction will limit Microsoft financing options for partners, particularly those delivering complete systems, such as Dynamics accounting systems, to smaller customers.

Microsoft Financing is a unit within Microsoft’s Worldwide Licensing and Pricing group that loans money to customers in 15 countries. The unit formerly financed packages of software, hardware, and services that included any level of Microsoft products and services. The new rule requires that Microsoft software and services make up 35% of the monetary value of every financed deal and invoice. This will be a high bar, particularly for the Dynamics partners who were the earliest targets of Microsoft Financing and who are more likely to deliver complete hardware, software, and service packages to customers.

However, Microsoft says that 90% of the sales it finances exceed the 35% criterion: Over the past three to four years, an increasing percentage of Microsoft Financing’s business has come from financing license sales for large customers. The new rule will accelerate that trend. Microsoft continues to offer what amounts to 0% financing of license fees (but not hardware and partner services) through programs such as the Enterprise Agreement, and the company has recently extended these terms to larger Dynamics customers. However, these don’t offer one of the major benefits of Microsoft Financing: partners are paid when the loan is approved, reducing the need to wait for payment.