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BY MARY WISNIEWSKI Business Reporter
May 26, 2005

You've told your boss goodbye, and you're going to open that model train shop like you always wanted.

Your friends think you're an idiot. Your spouse is threatening divorce. But at least the banks like you.

Big banks say they want to bring in more small business clients, tapping into a market that employs more than half of all U.S. workers.

"It's clear that if the banks want new business, they have to look to small business," said Bruce D. Phillips, senior economist at the research foundation for the National Federation of Independent Business, a small business advocacy group. There are only about 17,000 U.S. companies with 500-plus employees, and "not every bank can get that business," Phillips noted.

"I think banks have found it a very profitable business to be in," said Wendy Coyne, regional sales manager with Bank One's small business financial services. Accounts for companies with less than $10 million in annual sales have grown by more than 10 percent at Bank One branches since 2003.

Small business clients help banks diversify their risk, said Thomas Doherty, group senior vice president of Midwest business banking for LaSalle Bank.

"Over the last two years, the competition among banks for small business has really heightened, not only in Chicago, but nationally," Doherty said. In the last year, LaSalle has grown its number of small business clients by more than 10 percent.

Some banks might be more willing to talk about small business than put any money into it, said Michael Fields, director of policy and research for the Chicagoland Entrepreneurial Center. He said banks have to be creative in finding ways to finance new companies -- by creating lines of credit and working with the U.S. Small Business Administration, which can guarantee part of a loan.

Topping the list in Illinois among banks making SBA-backed loans in the past seven months is Charter One, with 690 loans worth $22.4 million.

Charter One has hired 46 new business bankers in Illinois since Oct. 1 to go out and "call on the marketplace," said John Golden, Illinois director of business development. The bank's interest in small business is connected with its acquisition last year by Rhode Island-based Citizens Financial Group, a leading SBA lender.

"Businesses have to start somewhere, and most of them start small," Golden said. "We can grow with them."

Also in the top 10 for number of SBA-backed loans was Bank One parent JPMorgan Chase, National City Bank-Midwest and Fifth Third Bank.

Use of SBA loan products have increased by 100 percent in the last year, because the programs have gotten easier, said Bill Esquivel, finance chief for the SBA's Illinois office. "Banks are more willing to do it," he said.

Fifth Third has seen a 20 percent increase in its portfolio of Chicago area small business clients in the last year, according to Brian Mauntel, senior vice president of business banking.

Besides loans, small businesses need a variety of other services, like wire transfers, checking accounts, payroll help, credit-card processing and even foreign exchange services if they're dealing in imported goods. Bankers need to be able to anticipate clients' needs, so they don't wander to another bank, Coyne said.

A personal relationship with a banker can be critical. When Mylinda Viola started Gameday Giveaway in 2001, she found a resource in her National City banker, Beth Blom. "She took it upon herself to really hold my hand," said Viola, whose Forest Park business supplies tchotchkes like bobble-head dolls, T-shirts and batting helmets to fans at Chicago White Sox and Bulls games. Blom helped Viola secure an SBA loan, and vouched for her credit standing.

"Banks treat small businesses like you have to earn their business, when they should be earning yours," Viola said. "National City, and especially Beth, never treated me that way."

LaSalle has built teams of specialists that can help not just the small business, but the business owner's household, Doherty said. LaSalle has also simplified its loan and other products, to make it easier for clients to understand and for bankers to sell.

Harris has also simplified its loan process for small businesses in the last five years, according to Jonathan Rohde, senior vice president for small business banking.

What are people saying about mortgages today:

Rates on 30-year mortgages edged down last week to a seven-month low. Mortgage-giant Freddie Mac reported Thursday that 30-year, fixed-rate mortgages fell to 6.3 percent, down slightly from 6.31 percent two weeks ago. It put rates at the lowest level since they were at 6.24 percent the first week of March.

Bank of Hawaii, Central Pacific Bank, Territorial Savings Bank and Wells Fargo Home Mortgages all cut their 30-year mortgage rates to 5.75 percent this week.

Most people think of a mortgage as a means to an end. After all, you buy a house, not a home loan. But a mortgage is much more than the path to homeownership. It is a financial instrument that must be managed, just like any other financial investment.