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.

The banks give away computers and electronic organizers, hold essay contests, and publicly vow to lend millions within a few years.

"Small business is among the top two or three areas at many banks around the country," said Charles Wendel, president of Financial Institutions Consulting in New York. "They understand the value of the small-business customer and that they use a variety of products."

The bankers have good reason to be enamored with entrepreneurs. While companies with more than 500 employees cut 3.1 million jobs between 1991 and 1995, businesses with 19 or fewer employees added 7.3 million jobs, according to the Small Business Administration.

The shift in the economy means banks have fewer large corporate customers to pick from, said Jennifer Calenda, senior vice president and director of small business for Summit Bancorp. in New Jersey.

"The large corporate market is somewhat tapped out, because those companies have direct access to the capital markets," Ms. Calenda said.

Plus, many of the fastest growing industries, such as medical and dental labs and assisted-living centers, have a large concentration of small businesses. According to the SBA, 70% of high-tech businesses have fewer than 20 employees.

The medical labs need to lease equipment that quickly becomes outdated; assisted-living centers need commercial mortgages; and insurance and high- tech businesses need venture capital money. And banks are forming new units and moving into nontraditional fields to meet those needs.

"In the past, we might have said something isn't profitable for small business," Ms. Calenda said. "But now we find ways to make it profitable."

Some banks target specific niches, while others use mail or telephone marketing to reach business owners, and others rely on the traditional handshake approach of building relationships with entrepreneurs.

But despite these efforts, some financiers say bankers tend to confuse business owners by referring them from one department to another and eventually losing them in a maze of voice mail.

"The bankers are tied up in their underwear," Ms. Aulicino said. "They don't have a clear edict from their own leadership."

And some specialists say the bankers haven't quite figured out what they are doing.

"Leasing is a really hands on, labor-intensive, credit-intensive business," said Mark Caplan, president of Madison Capital, a leasing company. "Banks and some of the other institutions are being a bit more aggressive than I would be."

Mr. Wendel said banks have drawbacks, such as branch staff with limited training about small business needs, and emphasize less profitable lending over deposit relationships.

But he said strong banks would be successful in their new endeavors.

"Bankers are smarter than they have been before and they will figure out way to make things like asset-based lending work for their banks," Mr. Wendel said.

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