Going for Broker

Banks Still Have Clout

While brokerages are attracting small and midsized businesses with convenient offerings, they haven't displaced banks. NFO Financial Services research suggests entrepreneurs are still more likely to go to brokerages for investment and cash management products than for financing; the vast majority of brokerage customers still use a bank for some of their needs.

The brokerages have had success with larger small businesses and those less dependent on a bank's branch-based service, says Charles Wendel, president of New York City-based Financial Institutions Consulting. And while brokerage customers may find account officers more sophisticated than the typical banker, "the best banks have closed a lot of the gaps," Wendel says, citing Citigroup, Wells Fargo & Co. and National City Corp. as examples. "Because of the drop in interest rates, and because banks are better at marketing to small businesses, I don't think there's a great advantage anymore."

Another potential drawback is the lack of local credit decision-making, even for a "story loan," Wendel maintains. "If the loan is complex, you're better off dealing with your bank. They have more of a local presence, and can deal with some of these issues more easily than a Merrill Lynch can."

Access to credit wasn't an issue for Vertex Systems. Rather, finding a commercial lender that would advise the company on economic and growth issues was Nikkhoo's greatest challenge. He also feared volatility in the tech sector might wield too much pressure on a bank's lending decisions. "Everybody is willing to give you money in an up market," Nikkhoo says. "The challenge is when the markets get tough, how are banks going to react to the companies?"


Crystal Detamore-Rodman is a Charlottesville, Virginia, writer who covers the small-business finance market.

Contact Sources

  • Financial Institutions Consulting Inc.
    (212) 252-6700
  • Merrill Lynch Business Financial Services
    (800) MERRILL
  • Morgan Stanley Commercial Financial Services
    (212) 310-6258
  • NFO Financial Services
    (813) 637-0087
  • Vertex Systems Inc.
    (310) 571-2222, ext. 222
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This article was originally published in the June 2002 print edition of Entrepreneur with the headline: Going for Broker.

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