Dealer programs can prove to be a useful finance tool

The stigma associated with dealer programs - that they foster financially unsound firms - is beginning to change
Tuesday, February 1, 2005

While many owners of alarm companies traditionally think they only have two sources to raise capital for their business, securing a loan from a specialty lender or one from a local bank, they often forget about another, and often readily available solution - dealer programs.

For years, the security industry has attached a stigma to dealer programs. They’re often labeled as programs for mass marketers, or companies that can only survive by selling 50, 100 or more accounts a month.

That’s not so, according to Paul Sargenti, president and chief executive officer of SAFE LP.

“When used in a carefully managed and strategic plan by the businessman, it’s not necessarily a bad option,” he said. “It’s a way for a small businessman to have an equity raise-up."

The money, said Sargenti, can be used to purchase new installation vehicles or to open a branch.

Selling blocks of accounts is a valid business concept, according to Michael Barnes, partner of Barnes Associates. It’s a solution deployed by businesses around the world.

In the coming years, Tony Smith, president of Security Finance Associates, predicts that the dealer purchase program business is going to increase. Several alarm companies, besides just ADT Security Services, now offer account buying programs, such as Guardian Protection Services in Pittsburgh, Security Networks in West Palm Beach, Fla., and Safe Home Security in Rocky Hill, Conn.

“More dealers are finding that those are becoming friendly programs to the dealer,” said Smith. “Today, it’s looked at as a solution.”

Sargenti suggest that alarm company owners do their homework before signing up for a dealer program. Determine what you need the money for, how you plan to use the funds and over what period of time, he said.

And, don’t forget to also consider the nature of the program - will you be required to sell accounts on a monthly or continuous basis, or does the program allow for you to sell accounts over time?

Sargenti said the stigma associated with dealer programs often stems from alarm owners not determining if participating in an alarm program would be a viable solution for their business.

“At some point the dealer should not need to continue to source a dealer program or a small book purchase on a consistent basis, but on an opportunistic basis,” said Sargenti.