Connecticut entrepreneur Kenton J. Clarke would make a great customer for any financial institution that could get him to bank in one place.
His computer consulting firm had revenue of $10 million last year and serves dozens of large corporations.
But rather than stick to one bank for all his business' needs, Mr. Clarke uses one for checking and sweep accounts, another for leasing, and three brokerages for short-term investments.
Mr. Clarke, founder and president of Computer Consulting Associates, said he uses five institutions to generate higher returns on excess deposits and to reduce fees.
"If you have $1 million, there is a big difference between 2.8% interest and 5.2%," he said.
Mr. Clarke represents a growing number of entrepreneurs who are not satisfied with no-interest accounts and spread their money around to increase returns.
By law, banks are prohibited from paying interest on deposits in business checking accounts. In recent years, banks have begun offering sweep accounts, which automatically transfer excess deposits to interest bearing accounts, to skirt around the restriction.
Entrepreneurs like Mr. Clarke will force banks to offer a wider array of such products to hold on to small-business deposits, said Jeffrey S. Brown, a director at the consulting firm McKinsey & Co.
"Banks realize that people are getting more sophisticated about where they keep their funds," he said. "Those low-interest deposits will become an artifact of history."
The percentage of small businesses using nonbank financial companies such as brokerages increased to 59% in 1997 from 49% in 1988, according to a study last year by Financial Institutions Consulting Inc., New York.
Some brokerages, such as Merrill Lynch, position their cash management accounts to compete directly against bank checking accounts. Merrill and other brokerages use print advertisements touting the interest they pay on deposits.
Mr. Clarke has an interest-bearing sweep account offered by People's Bank, a subsidiary of $7.6 billion-asset People's Mutual Holdings of Bridgeport, Conn. But he says that is not enough.
His firm employs 110 people, who work with the information technology staffs of large corporations to build computer systems and work on special projects.
The company plans to hire another 65 consultants this year.
Founded in 1980, the business won the 1995 Supplier of the Year award from the National Minority Supplier Development Council.
In addition, this year the Small Business Administration named Mr. Clarke its Connecticut small-businessperson of the year.
Though Computer Consulting Associates typically has to pay employees before it receives money for completing a job, Mr. Clarke said he avoids borrowing and instead finances the company with retained earnings.
To generate the returns he wants, Mr. Clarke maintains business accounts with PaineWebber Inc., Fidelity Investments, and Mellon Bank Corp.'s subsidiary Dreyfus Corp.
"We've always been internally funded and have spent our money wisely," he said.
Though he would like to use one institution for his business' needs, Mr. Clarke said few can meet them all with the convenience he wants and at his price.
"Right now if I want to switch from a money market account to shares of stock, I can do it easily," he said.