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Is finance available in the security sector?

How do end users and developers finance their security installations? Are distributors providing finance or do customers rely on financial institutions to bankroll their projects? Is security a safe bet and does it provide return on investment? Hi-Tech Security Solutions finds out about the nuts and bolts of financing.

Jack Edery

Jack Edery, CEO of Elvey says that security installation projects are generally not financed by suppliers/distributors. Typically you find that the consulting engineering company, who project manages all elements of the project, seek out its own finance. Financial institutions are constantly looking at new ways of presenting their offerings to the market to make them more attractive, and by including the security element they are able to tap into a new sector of the market.

Jessica Muller

Jessica Muller, services manager at Security & Communication Warehouse says that the company has found the market to be very quiet at the moment due to the financial climate. She also believes that many installers are not educated in terms of what benefits the end user might derive from choosing a rental option.

Mel Labuschagne

Mel Labauschagne, MD of Reditron says that the company has definitely seen an increase in the number of system integrators finding their own finance. He attributes this to the fact that the security world is leaning increasingly more towards IP technology. Financial institutions have for years been happy financing IT projects so the move towards IP in security makes these players a more stable risk.

He continues that as few as five years ago, security was considered to be a high risk investment as it was perceived to be a non-defined asset that devalued quickly and could be tampered with or stolen. Based on the increased value of IP security equipment, it is now no longer the black sheep.

Money talks

In terms of determining what is worth financing, Muller says that the banks normally have a guideline of what they will finance, and don’t only look at price but rather at the type of installation, with emphasis placed on stock that has serial numbers.

Edery agrees that price is only one factor, with the financial status and business model of the end user or developer playing a large role. Other factors that come into play include the requirements of insurance companies for fire and crime detection/prevention technology to protect buildings as well as human and material assets.

Among the questions that financial institutions need to ask is whether the security system forms an integral part of the building in which it is installed. Can they, for instance, remove security equipment should there be a non-payment by the debtor?

Labuschagne believes that security systems do provide a return on investment. If one looks at surveillance and access control systems in context, in other words not just as a security system, but rather as a business tool, then the benefits are apparent. He continues that video analytics and point of sale (POS) built into the VMS add great value for retailers and chain stores as well as distribution businesses.

There is, he says, an expectation that they will deliver more than just video footage but rather that they will provide proactive data and, when used with complementary technology, will add to rather than subtract from the bottom line.

Edery believes that financing the security installation itself does not provide an ROI as it cannot be removed from the building, unlike being able to repossess a motor vehicle. However, the ROI subsists in the fact that the building and its assets are now secured.

Consider renting

Muller says that rental finance is the most flexible and cost-effective financial package available. Globally, more and more businesses are moving away from unnecessary capital layout, having recognised the value of rental as a means of acquiring movable assets and capital equipment. The monthly rental payment is an operating expense and is fully tax deductible. VAT is not capitalised against the purchase price and interest is not paid on the VAT portion. As monthly rentals can be structured to suit your budget they reduce working capital requirements and are a cost-effective benefit.

She adds that financing security projects might not look like a good investment but it is driven by the following key factors:

* Financing the security products will conserve the client’s cash flow.

* The client will have some tax benefits.

* Companies like SCW offer 100% finance, with no deposit required.

* Better quality products can be purchased.

* The end user can replace the system regularly, with a very small difference in monthly price.

Rental deals are structured over 12, 24 and 36 month periods. The straight line rental plan suits stable products that exist in a low inflation environment as monthly payments are fixed over the entire contract. Therefore, less regular upgrades are required. The escalated rental plan maximises the affordability of equipment. Payments increase by a given percentage each year and the annual increase is fixed, which means the client can still predict their cash flow over the full contract period.

SCW Finance plays a strategic role by interfacing between clients and facilities. As they use several facilities, they are able to obtain finance for clients at the most competitive rates and beneficial approval criteria.

Non-rental options are similar to financing a motor vehicle, for instance. The finance is based on the value of the product, over a certain number of months. With technology changing so rapidly, this allows integrators to offer clients the opportunity to upgrade their systems, simply by extending the financing period for a further number of months as established by the lender.

Labuschagne says that 90% of end users or developers go directly to finance houses. However, distributors are able to provide recommendations in terms of preferential lending packages. He says that in exceptional circumstances, Reditron does offer certain systems integrators assistance with obtaining finance packages. He comments that as more government schools are investing in security systems and cash flow is sometimes an issue, assisting SIs with the appropriate introductions to financiers is becoming more prevalent.

The cost of a security installation will naturally increase when financing is required, however the upside of financing this element of a project is that end users will be able to afford a higher quality and more sophisticated brand and solution with value added features.

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