Morgan Stanley Dean Witter & Co. is putting the force of its 12,450 brokers behind a push into small-business banking.

The New York company has begun a plan to offer loan and investment products to small and midsize businesses nationwide. In Boston it is testing intranet software that its brokers are to use to open accounts, do transactions, and serve customers.

Morgan Stanley's software provider, Sanchez Computer Associates of Malvern, Pa., disclosed the bare outlines of the plan this month in an announcement of a software licensing agreement with the brokerage company. A Morgan spokesman declined to comment further.

"This is just the first step in our relationship with Morgan Stanley Dean Witter," said Terrence Bannon, a senior vice president at Sanchez. "They have ambitious plans with these services."

Sanchez's software supports a full range of retail and commercial banking activities, including Internet banking. It supplies the software on an outsourcing basis and is marketing it to nonbanks that want to quickly adopt the technology and infrastructure for banking operations.

Morgan Stanley already offers credit services to small businesses through its credit card unit, Discover Financial Services. With the Sanchez agreement, it is seeking to use the Internet and its broker network to enhance its presence in the small-business market.

Morgan Stanley is not the first nonbank financial services company to turn its attention to small-business lending. Merrill Lynch & Co. has acquired 160,000 small-business customers since it began courting them in 1986 with a Working Capital Management Account, which combines investment accounts with cash management. It added loans in 1993. Now, in addition to its brokerage force, Merrill Lynch has 100 specialists serving small businesses.

Similarly, American Express Co. started lending to small businesses in 1996. It would not comment on how many customers it has.

Morgan Stanley is entering the small-business loan market with a strong hand. Discover already has a lot of small-business customers, and the brokers have relationships with high-net-worth customers who are often entrepreneurs, said Christopher Musto, director of financial services at Gomez Advisors in Lincoln, Mass.

"There has always been a correlation between small-business owners and private clients," Mr. Musto said, "because often you are dealing with the same decision maker."

Morgan Stanley's entry into the small-business market is an enormous threat to banks and should serve as a warning, said Donald B. Taylor, president of FISI-Madison Financial, a bank marketing firm in Nashville.

"Most traditional banks have been in the say-'no'-to-small-business-owners club, so those owners have gone to other places to get loans," Mr. Taylor said.

"There is going to be increasing competition out there because it is an underserved market," he said. "We are going to see a lot more competition from insurance companies and brokerage firms getting into this arena."

A potential snag that a bank would not face is broker resistance to selling small-business accounts, which could be less lucrative than investment accounts, said Andrew Guillette, managing director of Cerulli Associates, a Boston research firm.

"You have to question how strong the intermediary appetite is to sell these products because it takes time off from selling investments," Mr. Guillette said.

From a corporate standpoint, Morgan Stanley is wise to encourage its brokers to sell a multifaceted financial solution, he said, but brokers probably will be nonplussed.

"It's a cultural thing," Mr. Guillette said. "They didn't come to MSDW to become loan specialists."

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