Path: bloom-picayune.mit.edu!snorkelwacker.mit.edu!news.media.mit.edu!americast.com!americast.com!usa-post Newsgroups: usa-today.bonus From: usa-post@AmeriCast.Com Organization: American Cybercasting Approved: usa-post@AmeriCast.com Subject: bonus Tue, Jul 7 1992 Date: Tue, 7 Jul 92 05:13:30 EDT Message-ID: 07-07 0000 BONUS: Big banks court small firms USA TODAY Update July 7, 1992 Source: USA TODAY:Gannett National Information Network Philip Roeske has listened to plenty of sales reps peddling copiers, office furniture and long-distance telephone service to the small computer-service firm he runs in New York. He never heard many pitches from bankers. Until now. "For the first time, I see banks sending people door-to-door," says Roeske, chief executive of Horizon Technologies. "I never saw banks out cold calling before." ARE A LOT OF BANKS INTERESTED IN SMALL FIRMS? Other small businesses report the same strange sight: Bankers who have long ignored small companies suddenly are courting them. And that doesn't simply mean banks are going back to the way things were before the recession cut into bank lending two years ago. Rather, big banks that have never served small businesses are wooing them. WHAT IS THE ATTRACTION TO SMALL BUSINESSES? Many bankers, burned in the 1980s by bad loans to Third World countries and real-estate developers, say serving small business may be the key to future profits for an industry facing fierce competition for consumer and big corporate loans. "It's a market that offers better opportunities than the larger, mid-size companies or the Fortune 1,000," says Paul Brawner, head of business lending at Huntington National Bank in Columbus, Ohio. WHAT DO SMALL BUSINESS OWNERS THINK? The trend has surprised some small-business owners. "Used to be banks wouldn't give you the time of day," says Bill Winger, president of Hyde Park Electronics in Dayton, Ohio, which makes sensors for packaging machines. "Now they're coming to us and saying, `We'll take care of you.' " WHAT HAVE THE BANKS BEEN DOING? Last month, Chemical Banking - the third-biggest U.S. bank company - sent 600 bank officers on a one-day door-to-door blitz to drum up business at 1,750 New York companies with less than $1 million annual revenue. In Altoona, Pa., Mid-State Bank decided three years ago that small firms would be its most lucrative market over the long haul. Mid-State's bankers call on small businesses whenever possible, including evenings. "The old banker's hours are pretty much gone," says Mid-State President William Rossman. ARE THE SMALL FIRMS INTERESTED IN TAKING OUT LOANS? Talk of banks' interest in small businesses might sound odd when bank lending to businesses of all sizes has been dropping for more than a year. But if banks aren't lending to small businesses, experts say, it's because the businesses aren't asking for loans. "Our people aren't having a credit crunch," says Terry Hill, spokesman for the National Federation of Independent Business, which represents more than 500,000 small companies. "What we're discovering is they aren't borrowing the way they did before." ARE BANKS WILLING TO MAKE LOANS TO ALL SMALL FIRMS? The focus on small businesses hasn't changed one thing: Banks still shy away from lending to start-ups, focusing instead on established firms with long records of profitability. Banks' new enthusiasm for small business also is tough to document. Banks don't have to break out small-business loans in the reports they file with the federal government. And different banks define small business differently - although one rule of thumb is that a small business is any business with less than $10 million annual revenue. ARE SMALL BUSINESSES EXPECTED TO GROW? At a time when most banks' loan portfolios are shrinking, 81% of banks that target small businesses expect their small-business loans to rise or stay the same this year, according to a survey by accountants Grant Thornton. One reason: After a recession, small businesses tend to start growing faster than do big companies. Bank of Boston chief economist Wayne Ayres says small businesses account for more than 80% of jobs created in the early stages of an economic recovery. ARE THERE OTHER REASONS BANKS ARE COURTING THE FIRMS? One reason for the trend is competition for other loans. The past two decades, the USA's biggest banks have lost their traditional customers - the nation's biggest corporations. Blue-chip companies used to do most of their short-term borrowing with banks. Now those companies raise money more cheaply by selling short-term debt, called commercial paper, directly to investors. What's left of the Fortune 1,000 market is increasingly dominated by foreign banks, which have charged bargain-basement interest rates to win customers. IS THERE THE POTENTIAL FOR PROFIT? Big companies divvy up their business among several banks. Small firms don't have time. So the bank that wins their business doesn't just make a loan, it gets deposits and fat fees for services such as payroll processing and providing letters of credit. Last year, 46% of bankers surveyed by Andersen Consulting said they could earn returns of at least 15% on their equity - a benchmark for profitability in banking - by serving businesses with less than $10 million annual revenue. ARE INTEREST RATES GOING DOWN? Five years ago, a bank might have loaned money to a small company at, say, the prime rate plus 2 1:4 percentage points. Now, some small-business loans are going for prime plus 1 percentage point, sometimes less. "It's a bonanza for small business," says Doug Trott, a partner in consultants Oliver Wyman & Co. But Trott worries that rates are too low to cover the risks. DO LOCAL BANKS DO WELL WITH SMALL-BUSINESS LOANS? Small banks have an advantage because they know their local markets so well. Big banks trying to line up small-business customers in a new market face a greater challenge. Those big banks must get the financial information they need without spending too much time - and money - doing it. And they can't overlook risks or alienate small-business owners, used to being coddled by their community banks. DO SMALL BANKS FEEL THREATENED? Small banks scoff at the idea that big banks can come in and take their small-business customers. "Big banks are always changing their strategic focus. One year it's South America. Then it's Europe." Now it may be small business, says Bob Hawkins, president of the Independent Bankers Association of America. "Once they find out how labor-intensive it is, they may change their minds." DO BIG BANKS STAND A CHANCE? Prying small businesses away from their banks might be tough going. Despite aggressive wooing by many banks, Hyde Park Electronics still does business with Dayton's First National Bank, where it has banked since 1967. "What I have now are friends at the bank," Winger says. "It's hard to leave a friend." For now many small businesses are enjoying the unexpected attention. "They want our accounts," says Edwin Moore, vice president at Electric Metering, an Arlington Heights, Ill., a consulting firm that helps developers work with utilities. "They want to be our pals." Bonus Editor: Ed Kelleher. (1-919-855-3491) Making copies of USA TODAY Update (Copyright, 1992) for further distribution violates federal law. This article is copyright 1992 Gannett News Service. Redistribution to other sites is not permitted except by arrangement with American Cybercasting Corporation. 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