Late last year Mike Truman, CEO of $4-million Truman Door Systems, in Carlsbad, Calif., talked to his banker and several other local lenders about the prospect of cranking up his credit line from $150,000 to $300,000. His five-year-old company, which assembles and installs garage doors, was opening a second office, and he needed more working capital to cover his accounts payable. But in the end Truman didn't go with any bank. Instead, he secured a $300,000 credit line from Merrill Lynch, the country's largest investment-brokerage firm.

Not only did Merrill Lynch offer Truman the amount of working capital he wanted, but it also gave him the best rate: 1% over prime for 12 months, and 2% over prime for up to five years. The other terms, he says, were attractive as well. For instance, unlike his former bank, Merrill Lynch doesn't require him to notify anyone when he dips into his working-capital line. What's more, he automatically pays down the loan the moment he makes a deposit. Whereas most banks love sitting on funds without paying interest on them, Merrill Lynch requires no compensating balances; it pays Truman a market-rate return on any positive balance. Although most brokerage firms have some mechanism for letting their best customers borrow against their securities, Merrill Lynch is the only big investment company that offers working-capital lines to business owners. Merrill entered this market back in 1986, notes Dick Hanson, director of the firm's business financial-services group, to give its 11,000 salespeople scattered among 480 domestic offices additional products to sell.

So far, Merrill has set up working-capital management accounts for around 100,000 businesses across the country. But only about 10% of the account holders have arranged for credit lines, which usually range from $300,000 to $5 million. To keep their credit lines open, customers pay a basic yearly account fee of $150 and a commitment fee of .5% of the preapproved-loan amount.

Aggressive as Merrill seems, Hanson notes that its credit standards are quite rigorous. It targets companies that have been in business for at least five years, have revenues of $2 million to $30 million, and are profitable, and where the net worth of the owners exceeds the amount of credit being sought. "In more cases than not," says Hanson, "we want the loans to be guaranteed by the owners." Certain industries, like commercial real estate, he says, are "definite turnoffs"; others, like construction, aren't ruled out, but "we want to see good performance and a backlog of work," he says. Because the focus is on privately owned businesses, the credit department, based in Chicago, scrutinizes the credit history of individual owners as well as the performance of businesses. "More than anything," Hanson says, "we're looking at people."

Truman, whose only contact with a local bank is through a payroll account, is delighted with the arrangement so far. "When my banker heard about it, he said, 'We would have done the same thing.' But the fact is, they didn't."

-- Bruce G. Posner

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