Buddy System With innovative services, banks are creating new partnerships with small businesses.

When Roy Williams Sr. needed a loan to start New Orleans DepotServices in September 1996, he turned to New Orleans-based WhitneyNational Bank. After all, Whitney had served him well during the 20years he'd banked there as owner of AAA Tire Finishing, a tirefinishing equipment and supply company. When he decided to start asecond business with his son Kirk, Williams knew his loan officerat Whitney would work with them to make it happen. And he wasright. Just a few days after applying, the partners got anequipment loan and a line of credit for their shipping-containerservice and repair company.

Good relationships have always been important in banking, butthese days, the relationship between banks and small business israpidly expanding as more banks offer cash management programs,streamlined loans and convenience services to their small-businessclientele. At Whitney National Bank, for example, Williams andother small-business customers can do more than obtain loans andlines of credit; they can also take advantage of a host of servicesunder the bank's new Business Edge Banking program, which waslaunched in May 1996.

According to Whitney's vice president Rebecca Dey, BusinessEdge Banking was the direct result of input from small-businesscustomers. Whitney defines a small business as one with fewer than20 employees and no more than $5 million in annual sales, saysDey.

"We found there was a real need for a business checkingaccount that is as easy [to use] as a personal checkingaccount," Dey says. As part of Business Edge Banking, Whitneycreated a no-fee checking account for companies that write fewerthan 150 checks a month and maintain either a $2,500 minimumbalance or a $5,000 average collected balance each month. Aconsolidated monthly statement puts all account and loan activityin one report, simplifying cash management; customers can evenreceive a daily fax of the previous day's banking activity.

Whitney's Business Owner's ATM card provides 24-houraccount access. "I know what small businesses' hoursare," Dey says. "They're doing banking at 9 p.m. andon weekends."

Whitney National Bank is just one of a growing number of bankstargeting small companies with tailored financial managementprograms. Although there aren't any statistics on exactly howmany banks offer such programs, industry observers say thesmall-business market is garnering attention as other bank revenuestreams subside.

Ann Grochala, director of bank operations at the IndependentBankers Association of America (IBAA), a trade group to whichnearly 5,500 community banks belong, says that banks are seeingincreased competition from nonbank financial institutions. Sourcessuch as Merrill Lynch, American Express, Money Store and eveninsurance companies are helping small businesses finance equipmentand inventory. She adds that one way for banks to compete is tooffer other products, such as cash management and electronicbanking.

Small But Growing

Terri Dial, vice chairman and head of the Business Banking Groupat Wells Fargo Bank, says her bank sees small business as a crucialgrowth market. Growth engines that spurred bank growth in the 1980sare less reliable now--big corporations often skip bank financingin favor of the capital markets, and large-scale real estatedevelopment has slowed considerably. "As a market segment,[small business] is growing," Dial says.

To capitalize on this growth, Wells Fargo created a line ofproducts and services for small businesses in the late 1980s. Amongthe first products introduced were a flat-fee small-businesschecking account and ATM banking for small companies.

Once available only to individuals, ATM cards with variousaccess levels are now issued by Wells Fargo to small-businessowners and their employees. In addition, Wells Fargo's NationalBusiness Banking Center provides small-business clients withaccount information and assistance via telephone 24 hours aday.

The frequent interaction with and feedback from small-businesscustomers also led Wells Fargo to make some improvements in itssmall-business lending program. "When we talked tosmall-business owners, they said they weren't being served verywell," Dial says. "So we made some dramatic changes inlending. We found out one reason small businesses complained aboutaccess to credit was that they just needed small loans."

Traditionally, paperwork and processing time have made lendingamounts in the $25,000 range too costly for banks. By streamliningthe application process and reducing paperwork--not to mentionmaking a profit from the additional fees for new banking productsfor small businesses--Wells Fargo has been able to make more smallloans. Dial says the majority of the bank's small-businessloans are now for less than $50,000. The upshot? In 1989, WellsFargo's small-business loan portfolio was about $300 million,according to Dial. Today, it tops $5 billion.

Working Harder

Part of the trend toward banks offering more programs may haveto do with the economic cycle. "Several years ago, there was acredit crunch," says Grochala. "For the last couple ofyears, however, small businesses have been thriving." As aresult, they present a more attractive market for banks totarget.

Many of the banking programs targeting small businesses arestill very new, so it's difficult to say whether they are hereto stay or how far they'll really go in improving the overallfinancial climate for small businesses. According to the 1996Survey of Small and Mid-Sized Businesses conducted by ArthurAndersen's Enterprise Group and trade group National SmallBusiness United (NSBU), 77 percent of the approximately 480businesses that reported applying for a bank loan in 1996 succeededin obtaining that loan. That's down from the 85 percent ofrespondents who succeeded in getting a bank loan in 1995.

Beyond traditional loans, however, banks are coming up withother ways to help finance businesses. According to theAndersen/NSBU survey, 3 percent of the nearly 1,000 companiespolled said they had pledged or sold their accountsreceivable--factoring, as the tactic is generally known--to helpfinance their businesses. Factoring isn't a new concept, butthe fact that banks are beginning to offer it as part of theirsmall-business banking programs is somewhat unique.

For David Stern, factoring is a necessary source of capital forDavid Stern Jewelers Inc., the Boca Raton, Florida, company hefounded in 1983. When Stern ships his gold and jeweled creations toretailers nationwide, he can often expect to wait a good 90 daysfor payment. Selling his accounts receivable and getting the moneythe day he ships orders enables him to buy materials to filladditional orders.

Though Stern says he had several options when looking for afinancial institution, he chose the local First Southern Bank,which buys receivables from Stern that are less than 59 days old.Factoring helps Stern service new accounts by allowing him to offercustomers credit terms. "My business is growing rightnow," he says. "It would be impossible to grow without[the factoring program]."

According to Robert H. Santom, CEO of First Southern, the bankcharges an average of 3 percent for the service and keeps another10 percent in reserve as protection against uncollectable bills.Many companies are able to make up the 3 percent, Santom says, bytaking advantage of discounts for paying insurance premiums on ayearly basis, for example, or increasing business by offeringcustomers favorable payment terms.

Technical Assistance

Advances in computer and interactive technology are rapidlyputting the kind of information and services once available only tolarge corporations within reach of small businesses. National CityBank of Columbus in Ohio, designed its Desktop Banking program withsmall-business owners in mind, says Anne Jennings, vice presidentof the Business Services division.

Using Desktop Banking, business owners can access all theirNational City accounts via computer to check balances, transferfunds and even make quarterly tax payments. The software packagecosts $150 to set up, then $50 per month for the first account and$7.50 per month for subsequent accounts. Jennings says mostbusinesses' cash reserves cover finance charges, so mostdon't pay for the service.

James Shaffer, vice president of administration at Paul J. Fordand Co. in Columbus, Ohio, uses Desktop Banking to handle payrolland cash management at the 30-employee structural design andengineering firm. "It's a way to do banking whenever youwant," Shaffer says. He cites simplifying payroll as theprimary advantage of the system, which allows the company to offerautomatic paycheck deposits to its employees.

Wells Fargo's Business Gateway, an online service for smallbusinesses, has a special feature that warns business owners whentheir cash accounts fall below a certain pre-programmed level. Theidea came from a focus group, says Dial, who adds, "Our bestideas have always come from our customers." Introduced on alimited basis last summer, the $5 monthly service will be rolledout to Wells' customers this year, but Dial says word-of-mouthhas already resulted in a subscriber base "in thethousands."

First Southern Bank will launch its own online banking programnext month. Santom says the program will focus initially onbusiness accounts, allowing customers to stop checks, transferfunds and the like. "A couple of years ago, it would have costus $1 million to do this," he says. "Now we can do it for$25,000."

After all, banks are businesses, too. If they can make cateringto small companies profitable, they will do it. The trend towarddesigning bank products and services for small business is not yetcomprehensive in scope, but experts say it could pick up if theeconomy and small businesses stay strong. The banks--and thesmall-business products and services--profiled here represent justsome of the many programs banks are offering nationwide. With somany choices available, be sure you shop around or request evenmore from your current bank.

Contact Sources

First Southern Bank, 9955 Glades Rd., Boca Raton, FL33434, (561) 479-2100;

Independent Bankers Association of America, 1 Thomas Cir.N.W., #950, Washington, DC 20005-5802, (800) 422-8439;

National City Bank of Columbus, 155 E. Broad St.,Columbus, OH 43251, (614) 463-7624;

New Orleans Depot Services, 5690 Chef Menteur Hwy., NewOrleans, LA 70126, (504) 242-6009;

Paul J. Ford and Co., 250 E. Broad St., #500, Columbus,OH 43215, (614) 221-6679;

Whitney National Bank, 228 St. Charles Ave., #307, NewOrleans, LA 70103, (800) 347-7272, (504) 586-3620.

Stephanie Barlow is a former senior writer forEntrepreneur.