Short-term investing wasn't on Gary Whitmer's mind when he approached Society Bank in 1988 for a loan to launch his lighting business.

Just starting out, the Akron, Ohio, businessman had financing needs but little to sock away. But as the business took off he was faced with an enviable challenge: making the most of the excess cash his company was building up.

For a while, he put his money in 90-day certificates of deposit. But then Society's successor, Key Bank, approached him with what he thought was a better idea.

"They sold me on a sweep money market mutual fund account," said Mr. Whitmer. "It was a no-brainer. Why not make the extra interest?"

Though banks have long been a place for small-business owners to park their short-term money, the range of investment choices was limited to such traditional products as certificates of deposit, money market deposit accounts, and commercial savings accounts.

But as Mr. Whitmer found out, a number of superregional banking companies, including KeyCorp, First Union Corp., PNC Bank Corp., and Wells Fargo & Co., began broadening their offerings to be more customer-friendly.

Those products include money market mutual funds and sweep accounts, which automatically transfer a preset amount of idle cash into an interest- bearing fund of the customer's choosing.

People like Mr. Whitmer view the automatic investment feature as an improvement over traditional short-term investment products that require them to take some action each time an account or instrument reaches maturity.

The American Banker small-business survey showed the sweep account has become the fastest-growing short-term investment choice of small businesses.

From 1991 to this year, the percentage of small businesses using sweeps has jumped from 2% to 7%, according to the research conducted for the newspaper by Payment Systems Inc. of Tampa.

Over the same period, bank staples such as certificates of deposit and savings accounts fell off. Of small businesses surveyed this year, 11% invested in CDs, down by 3 percentage points from 1991.

"What I see is a drive for yield," said Nick Certo, senior vice president for business banking at PNC Bank Corp. "There is a recognition by a lot of small businesses that FDIC insurance is not that important. This is, after all, a group of customers who live risk every day of their lives."

This change in attitude plays into the hands of nonbank competitors like Merrill Lynch & Co. and Smith Barney.

The nonbanks currently have a small share of this short-term investment market, perhaps no more than 5%, said Charles Wendel, president of Financial Institutions Consulting, New York.

But Mr. Wendel and other industry observers say the nonbank share will continue to grow, given the marketing prowess of brokerage firms with armies of financial consultants spread across the country.

A Merrill Lynch spokeswoman said she did not want to discuss the company's marketing of investment services to small-business owners. But Mr. Wendel said the nation's largest securities firm uses its vast network of traditional financial consultants to reach small-business people.

Merrill's brokers will sell businesses various services after selling the entrepreneur on Merrill Lynch for his or her personal account.

"They have brokers who get paid commissions based on their success in selling these accounts, so they have incentive to do it," said Mr. Wendel. "And you can find them from Lafayette, La., to New York City."

The banks aggressively pursuing the small-business niche are are not taking the competitive pressure lying down.

KeyCorp, for example, offers investment products to small businesses in all 13 states where it has a presence, from Maine to Alaska.

The Cleveland-based banking company offers a wide variety of products. Currently the most popular is a sweep account tied to KeyCorp's proprietary money market mutual funds.

The accounts are part of a package of financial services, ranging from loans to 401(k) plans, that KeyCorp offers to small businesses.

"Credit is the hook for banks to start the relationship for small businesses that are in the cycle where they are borrowing," said Sandra Maltby, KeyCorp's executive vice president for small business. "But many businesses aren't borrowing - they just want to optimize their business."

Like KeyCorp, PNC Bank Corp. offers a wide range of short-term investment products, said Mr. Certo. The products are sold by relationship managers.

Like other small-business bankers, Mr. Certo is finding that the sweep account is where the action is. The Pittsburgh-based bank's sweep business is growing at a 20% clip, far outpacing the alternative investment areas.

"Sweeps are growing because of the yield and convenience," he said. "People want to see more of their money work for them."

Mr. Certo said the nonbank threat is this part of his business isn't great yet, but he doesn't expect that to last.

"Our primary competition in this area is still with banks, but we do recognize the competitive position of a Merrill Lynch or a Smith Barney," he said.

Still, bankers feel comfortable that their competitive advantage stems from banks' being the primary financial institution for most small businesses.

"With a bank, a customer can do one-stop shopping," said Ellen Lurier, the sales manager for First Union's small-business banking division. "They can develop a relationship."

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