Houston that he shares with his wife. No ordinary homeowner, Mr. Floyd runs a national small-bank consulting business out of a set of second-floor offices. As a home-based entrepreneur, Mr. Floyd is emblematic of a growing trend - one that community banks should pick up on. But to hear him tell it, several of the community banks that he has accounts with have little understanding of his needs. "I don't think that my banks look at me as a home-based business," he says. When it comes to servicing the home-based business market, community banks profess an ignorance that industry observers find anything but blissful. Clearly, the numbers show that home-based businesses are growing at a faster rate than small businesses as a whole, thanks largely to the need of startup entrepreneurs to keep their costs down. Though there are a wide range of estimates of the number of home-based businesses, the best guess is that about 15 million of so are plying their trades across the country, according to GartnerGroup, a Stamford, Conn., consulting firm. These home-based businesses consists of a wide range of both product-driven and service-driven companies including construction, cleaning services, consulting practices, and even retail businesses. According to study released by Dun & Bradstreet this past summer, half of small business owners were home-based this year, up from 38% in 1997, which many say is a phenomenon that will continue as technology makes working from home easier. Best of all, these home-based business owners have a particular affinity for smaller financial institutions, says PSI Global, a Tampa, Fla., consulting firm, in a recent study. According to PSI, 37% of the home-based respondents have some type of relationship with a community bank, and a third have personal accounts with credit unions. "The preference is there," says Maria Erickson, a senior vice president with PSI. At the same time, an earlier PSI study showed that banks are missing the opportunity to provide financing to the home-based-business sector. More than half of the businesses pay for expenses with personal credit cards, with 70% of the entrepreneurs using a credit card from an issuer other than their primary bank. Part of the problem, Ms. Erickson and other bank experts say, stems from the difficulties that banks have in distinguishing between a home address and a business address. Banks often treat a home-based business address like a retail address, failing to reach out and cross-sell other types of relevant products, such as sweep accounts, small business checking, or cash management accounts. Bankers say that even when making loans to entrepreneurs, it is difficult to tell whether a certain construction engineer or hairdresser works from home unless the banker comes into personal contact with the customer. Scott Rubie, a senior lending officer with $130 million-asset Community Bank of Arizona, Wickenburg, is hard-pressed to come up with even one name of a home- based business customer. Frederick Martin, president of Independent Community Bank in Tequesta, Fla., can think of a few such customers among the small businesses that largely make up his bank's clientele. He says that one client is a successful home-based publisher of brochures for restaurants who uses his bank for a number of services, including a line of credit and a checking account. But while he does not turn away owners of home-based businesses, Mr. Martin says he prefers to have commercial clients with gross sales of between $250,000 and $5 million and people who have been in business for at least two years. "That tells me that they will probably make it," Mr. Martin says, echoing other bankers' fear about taking risks with startups. Some experts, however, say that community banks had better take steps to learn about home-based businesses, which they see as the wave of the future. Mr. Floyd, who reverted to a "virtual office" in 1994, says that technological advances enabled him to move his firm from an office. "You push a button on the cellular phone and you're in touch with everyone," he says. The Internet is another area that draws many home-based businesses. This tendency in turn provides an added impetus for a community bank to step up its on-line services. Dun & Bradstreet says that more than half of home-based businesses have Internet access, up from 47% in 1997. Small banks need to speed up their on-line presence. According to Grant Thornton, 33% of community banks with assets of $100 million or less have their own Web sites. It is unclear how many small banks offer on-line services. Gartner's 1997 report says that banks are facing fierce competition from nonbanks, many of which have taken the lead in setting up advanced Web pages and serving up on- line products. "Because small business owners typically are more computer-savvy and may be frequently using the Internet for business or personal reasons, banks may have missed opportunities in marketing their services to potential clients," the report adds. Cambridge, Mass.-based Forrester Research urges all banks to forge relationships with the home-based business. Forrester says that 49% of on-line households that own or operate a business from their home use on-line banking. "Banks need to focus on the ease-of-use and time-saving benefits on-line banking can offer to the 51% of on- line home businesses that are not banking on-line," the report says. Independent Community Bank's Mr. Martin is happy to report that his bank offers Internet banking, which he sees as a helpful tool in attracting potential new small businesses. James Bolt, president of Durham, N.C.-based First Trust Bank, a nine-month- old institution that targets small business professionals, says that Internet and PC banking are necessary tools in building relationships with small businesses. "We want to deliver the level of service of a private bank" for small businesses and professionals, he says. Although Mr. Bolt's bank, which has $45 million in assets, does not "consciously" target home-based businesses, these businesses are easily served by First Trust's voice response system, an in-house courier that picks up and delivers banking documents, or a specially priced small business account, which requires a $2,500 minimum balance. One bank that is going wholeheartedly after home-based businesses is First Main Line Bank, St. Davids, Pa., which serves the western suburbs of Philadelphia. Ted Peters, the bank's president and chief executive officer, estimates that roughly 15% of his customer base is made up of home-based businesses. He says he looks at the potential of home-based ventures and of what he calls closely held businesses. "Someone starts a business at home, and within 18 months they grow to take space in an office," Mr. Peters says. Mr. Peters says that through print and TV ads and direct mail advertising, he actively encourages people in the affluent regions of his bank's service area to start their businesses and take advantage of the bank's cash management services, high-touch personal service, special loans, and unsecured lines of credit. The bank, which has $155 million in assets and is wholly owned by Berks County, Pa.-based National Penn Bancshares, a $1.3 billion bank company, offers two types of accounts, one with no minimum balance and the other with a $500 minimum. "Home-based businesses are looking for cost savings," he says. "We try to nurture them, knowing that they will grow." Ms. Merrill is a freelance writer in New York.

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