Finance companies are now making more than a quarter of all short- and intermediate-term business loans, according to a new Federal Reserve Board study.

Showing steady growth over the last 10 years, the Fed study found finance companies controlled 28% of the $1.2 trillion market in 1996, up from 18% in 1985.

Almost all of the gain has come at the expense of banks, which saw their share of the market drop to 55.7% in 1996, down from 72% in 1985.

The study, published in the July Federal Reserve Bulletin, found that finance companies in 1996 funded $205 billion for equipment, $89 billion for motor vehicles, and $47 billion for miscellaneous purposes.

Kevin D. Spinner, an analyst at Keefe, Bruyette & Woods, said bankers shouldn't worry too much about the study's results. Most of the finance company gains occurred during the credit crunch of the early 1990s when banks left the small business market.

"During the big capital crunch for banking at the turn of the decade the banks pulled back and it was a great environment for finance companies," he said. "But in the current environment banks are very strong."

Also, Mr. Spinner said two other factors affect the bank's market share. First, finance companies are attracting customers who often would not qualify for bank credit. This expands the total pool of consumers, meaning banks have a smaller share even though they are making more loans. Also, he said banks are losing some customers to the capital markets, which is depressing corporate lending growth.

The Fed also reported that consumer lending rose. Finance companies extended $217 billion in personal car loans and leases, $46 billion in revolving debt, and $62 billion in miscellaneous loans. Car financing increased an average of 9.9% a year since 1990, the Fed said.

The largest 20 finance companies were responsible for 71% of the lending. Their domination was most pronounced in consumer lending, where they had 86% of the market, up 9 percentage points from 1990. Their control of the business market fell to 63%, down 4 percentage points.

Securitizing assets also has become more prevalent. The Fed found that finance companies securitized 16% of receivables in 1996, up from 5% in 1990.

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