To expand its customer base and geographic reach, Mercantile Bancorp.'s lead subsidiary has begun offering small-business loans to clients of the Edward D. Jones & Co. brokerage firm.

"We're trying to combine our expertise in small business with their distribution network," said Harry C. Mueller, senior vice president of the St. Louis-based banking company. "They are in markets where we don't have any presence."

The nine-month pilot program will extend the bank's reach to Indiana, Ohio, and Wisconsin.

Mercantile will also lend to the brokerage company's customers in Illinois, where the bank already has branches. Edward D. Jones is also based in St. Louis.

If the program is successful in those states, the bank will offer small- business loans to customers who use Edward D. Jones' 4,000 offices nationwide, Mr. Mueller said.

Mercantile said it would use credit scoring to offer secured credit lines and term loans of between $25,000 and $200,000 to businesses with less than $5 million in annual revenues.

Business owners can apply for the loans at an Edward D. Jones office or by phone. The bank, which has $30 billion of assets, will underwrite and process loan requests and handle customer service.

"We're very excited about this program and have high hopes for it," Mr. Mueller said.

The brokerage will market the loans to its customers.

Mr. Mueller refused to say how the bank and the brokerage would split the income from the loans.

Edward D. Jones said the venture with Mercantile made sense because so many of its clients are small-business owners looking for a convenient way to obtain financing for their business needs. "This small-business loans program was a natural extension of the services we already provide," the company said.

Jeffrey S. Brown, a director at the McKinsey & Co. consulting firm, said the relationship was a smart way for Mercantile to expand its market without building additional offices.

"Edward Jones has a huge customer base, so it's a very quick way for the bank to have a big-scale operation," he said. "It's a great idea."

Mercantile, which also has branches in Missouri, Iowa, Kansas, and Arkansas, is the 29th-largest bank lender to small businesses nationwide. It had $1.1 billion in loans of less than $1 million outstanding as of midyear 1997, according to Sheshunoff Information Services.

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