Learning to Live with (or Without) Your Banker

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Miller is pleased with Merrill Lynch's sophisticated cash-management services, as well as its facility in handling interstate banking requests. (The brokerage house has offices in all 50 states.) But he says the brokerage firm still lags behind banks in some critical areas. Payroll is one: by law, only banks can act as fiduciaries in turning over payroll taxes to the government; Miller maintains a separate account with a commercial bank expressly for that purpose. Also, Miller says, he's "definitely small potatoes" at Merrill Lynch; at a bank, he'd expect close, personal attention. The brokerage house's layers of bureaucracy mean that any unusual requests -- setting up an escrow account on a temporary basis or getting a letter of credit for international transactions -- can take months. "The chain of command is so huge you can't talk to anybody who can make a decision," says Miller.

Of course, there's another obvious reason that brokerage houses aren't for everyone. Most set minimum deposit and loan requirements well beyond what small businesses are able and willing to meet. (Merrill Lynch, one of the large players and the one that's been servicing the small-business community the longest -- 10 years -- still has a minimum commercial-deposit requirement of $20,000 to open an account, and a minimum loan size of $300,000.)

What if you're too small to show up on the radar screen of a brokerage house, let alone that of your local bank? That was the predicament facing Wee Tai Hom last fall, when he was in search of a $2,000 to $3,000 loan to expand his year-old aquaculture market and art gallery, AquaSource, in the Soho section of New York City. He was roundly turned down by four banks. "The problem with banks is you have to be an established company and in an established industry," says Hom. He was neither. "In addition, the banks all wanted five years of tax returns -- impossible for a start-up!" he says.

Hom approached the New York affiliate of Accion International, a microenterprise lender that started out making loans to low-income entrepreneurs in Latin America and that has recently opened up five branches in the United States. Accion acts as an intermediary between the traditional banking sector and low-income entrepreneurs, borrowing money from banks and then turning around and lending it to individuals like Hom, people who need credit but do not have the requisite credentials for a bank.

Hom obtained a $1,000 loan from Accion within three weeks. "They looked at my business but really focused on the credibility of the person," he says. In addition to allowing Hom to expand his product line, finance inventory, and conduct some local public relations, the Accion loan enabled him to establish a credit history with a financial institution "far sooner than I'd otherwise have been able," says Hom. "It expedited that process by two to three years." Each time Hom repays an Accion loan on time, he's eligible to apply for a larger one, says loan officer Richard Santiago. Hom plans to bank with Accion International until he qualifies for commercial-bank financing.

Hom's is not an isolated case. Microenterprise lending is entering mainstream banking. The Community Reinvestment Act of 1977 states that regulated financial institutions "have a continuing and affirmative obligation to help meet the credit needs of the local communities in which they are chartered," and microenterprise lenders like Accion International are a way to bring banks to the table on this. Despite huge demand, it's not profitable for most banks to make the tiny loans -- $500 to $5,000 -- that microenterprises need. "Anything under $50,000 is not worth their while," says Accion director of communications Gabriela Romanow. Lending funds to a microenterprise lender decreases the banks' risk, allowing them to serve the small-business market because it makes good business sense. "It's not giving away any money -- it's an efficient, effective model that's strategically helpful to banks," says Joel Werkema, community-affairs specialist at the Federal Reserve Bank of Boston. At last count, there were 250 microenterprise lenders in 45 states; over the past five years, those firms have lent more than $44 million to small businesses.

2. Do You Need More Than One Bank?
Banking with one bank is still the norm for TEC survey respondents, but the survey findings and conversations with company owners suggest that the use of multiple banks is on the rise. "I've never believed in the philosophy of putting all my eggs in one basket or bank," states Taylor Fernley, who manages more than 100 accounts with 10 commercial banks, eight savings banks, and five mutual funds in the course of running his trade-association-management company, Fernley & Fernley Inc., in Philadelphia.

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