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Shopping for business credit: Does loyalty pay?

Thursday, September 27, 2007

Merrill Lynch, http://www.business.ml.com

Small-business owners browsing the marketplace for lower interest rates may find the best overall terms right where they started.

With the Federal Reserve cutting its federal funds rate last week for the first time in four years, small-business owners may think the time is right to consider borrowing from another lender. And it’s an understandable impulse. A recent survey of small-business owners found that a majority of them think it makes little difference where they obtain financial services. However, by shopping for the lowest rates, they may be overlooking the advantages of maintaining or strengthening their existing financial relationship.

“A lot of people get hung up on interest rates, but they’re only one aspect of a relationship,” says Alex Dunlap, a Commercial Finance Manager in Merrill Lynch’s Global Bank Group. Small-business owners should consider what they stand to gain and lose by shopping around their accounts. They may find that some lenders are too large to be bothered with them or too small to give them the credit they need.

However, even if the lender were to offer financing, the company may have more sophisticated needs, which are better served by a firm with a more a comprehensive platform and who can partner to deliver solutions beyond just the loan.

New and not necessarily improved

Approving the loan is only part of what makes a financial service firm desirable. Borrowers need to compare a prospective lender’s costs of ongoing services with their current lender’s fees. Higher fees at the competing firm effectively drive up its interest rate. And some financial institutions simply “charge for everything,” says Dunlap.

Taking out a loan from another lender can also be expensive in other ways. Small businesses may find they’re making a costly mistake by not taking full advantage of their existing lender’s services, says Gerald Valletta of Merrill Lynch’s Global Bank Group, Southern Sales Division. “When small businesses borrow, they focus on the cost of the loan; often, they don’t take advantage of what they can do with their checking account balance,” says Valletta. “A lot of small companies keep as much as $500,000 in their checking accounts, without a second thought as to how they might better put those balances to work. Net borrowers can become net investors with the proper cash-management system.”

* Visit the Merrill Lynch Business Center at www.business.ml.com for more information about Merrill Lynch Business Financial Services Inc. financing for small to mid-size businesses.*
* Compare the fee schedule of your current lender with those of others you’re considering.
* Talk with your Merrill Lynch Financial Advisor about the cost-saving benefits of keeping all your accounts under one roof.

William Dunkleberg, chief economist at the National Federation of Independent Businesses, agrees that lenders adept at providing good cash-management services are a benefit to borrowers. “The more you can earn to offset your interest costs, the better,” adds Dunkleberg. Small-business owners may also benefit from services their current lender provides, which may not be available elsewhere. Remote-deposit technology, one such premium service, processes deposits digitally. If a business’s current lender offers this feature, it has the potential to save money. Time spent traveling to the lender’s office and waiting on a line can now be spent on profitable endeavors.

Even a business that is content with its lender may underestimate its relationships with its loan representatives. The substance of a client’s ongoing dialog with a Merrill Lynch Financial Advisor will say much about how highly their business is valued.

Email Marian Lenz at MARIAN_LENZ@ml.com

* Financing is provided through Merrill Lynch Business Financial Services Inc., 222 North LaSalle Street, 17th Floor, Chicago, IL 60601—California Loans made pursuant to a Department of Corporations California Finance Lenders License. Programs, options and property types are not available in all states and are subject to change. Certain conditions, restrictions and costs may apply. Not all features are available with all programs. All loans are subject to credit review and approval.


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