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."
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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
Originally published in the June 2002 issue of Entrepreneur Magazine
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