Magazine article American Banker

Downsizings Creating Entrepreneurs with a Big Appetite for Financing

Magazine article American Banker

Downsizings Creating Entrepreneurs with a Big Appetite for Financing

Article excerpt

Stefania Aulicino witnessed in her tenure as a Citicorp banker a significant trend: growing numbers of people were starting small businesses, and their financing options were expanding.

So seven years ago, Ms. Aulicino saw an opportunity to start her own business, Capitalink, that matches entrepreneurs with equity capital.

That opportunity developed because mid-level executives affected by corporate downsizings were increasingly founding small businesses. The strong economy that followed helped nurture many such businesses. And financiers were eager to increase funding to entrepreneurs.

"Historically it was perceived as low-risk to work for IBM, but now it's perceived as low-risk to work for a $10 million company where you can have an equity stake in the business," Ms. Aulicino said.

At the same time, banks flush with capital have discovered that applying retail banking technology to small business can help them make sounder lending decisions.

"Banks have consolidated and streamlined their consumer operations, and the technologies they refined in consumer banking are sweeping into small business," said John O'Connor, senior loan practice manager for Benchmark 2000, a consulting company.

Previously, banks serviced the small-business owners who happened to walk into the branches. Bankers shook hands with the entrepreneurs, reviewed their collateral and designed their loans.

"When you think back to the old days of banking, it was, here are the terms of the loan, take it or leave it," said Sandra Maltby, KeyCorp executive vice president for small business services.

Now applying for a loan can be as easy as dialing 1-800 or filling out a one-page application form that arrives in the mail. Some banks offer a loan decision within 24 hours.

Although many bankers still meet face-to-face with entrepreneurs, the traditionalists have automated some of their loan processing and added telephone or computer banking for time- strapped business owners.

Some banks have focused their attention on a specific niche in the small-business market, such as financing taxi cab operators, construction companies, or high-tech businesses.

Others want to make the most of reduced costs they derive from setting up automated loan centers. They're using mass-marketing methods similar to those of long-distance telephone companies to attract a broad swathe of entrepreneurs and transforming small- business banking into a volume business.

"In the past, some banks were granting the credit just to get the deposit relationship," Mr. O'Connor said. "But with all the competition for the deposits, banks have found a way to make the credit profitable."

Some of those banks have taken the process one step further. They created sweep accounts, venture capital units, asset-based lending divisions, and specialized leasing services.

Bankers are going to increasing lengths to attract entrepreneurs. They advertise small-business services on billboards, national television, and major metropolitan newspapers. …

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