Marshall & Ilsley Corp. has introduced a small-business credit line that-over the telephone-can be turned into as many as four term loans.

The unusual product, available in amounts of up to $250,000, is meant to help customers manage their borrowings and reduce the bank's processing costs.

"It's a single credit line that could satisfy a customers needs forever," said Craig Zander, M&I's director of small-business banking.

Here is how it works. First, the borrower applies for a credit line with an interest rate that is adjusted monthly in accordance with prime rate. If the line is granted, the borrower draws on it as needed. Or the borrower can call M&I and arrange to take some of the funds as fixed-rate term loan, used typically to finance equipment purchases for two to five years.

The fixed rates are updated weekly, using a complex formula based on the rate on short-term treasury bonds. For example, a borrower with a credit line at prime rate could get a two-year term loan at 8.57%.

The customer can take as many as four of the term loans, with no paperwork.

Les Dinkin, managing principal of NBW Consulting Group in Westport, Conn., said most banks allow customers to renegotiate credit lines to set up term loans, but few offer a product with the flexibility of M&I's.

"It's a very creative approach," he said. "It gives the business owner an option to manage their debt and monthly expenses."

The bank, which makes loan decisions in 48 hours, requires applicants to provide annual financial statements. Borrowers then use checks to draw on the credit lines, which are renewed annually.

M&I charges an annual fee based on the borrower's total relationship with the bank.

Mr. Zander said the Milwaukee-based bank received nearly 400 inquiries about the product during the first two weeks it was advertised in November. He also expects that it will help retain the customers.

"We hope it will discourage customers from shopping around, and the customer will pay for the convenience of being pre-approved for additional loans," Mr. Zander said.

But some competitors profess to be unfazed. Conrad Kaminski, president and chief executive officer of Lincoln State Bank in Milwaukee, said that M&I's offer has not swayed his small-business customers.

"Smaller banks have been much more attuned to the needs of community businesses, so they still come to us," he said.

M&I's small business offering is modeled after a consumer loan product that allows customers to draw on a home equity line of credit to set up term loans to finance individual purchases.

Mr. Zander said the bank will continue to pattern its small-business offerings after consumer products because entrepreneurs have different financial needs than large corporate customers.

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