Repaying the Loan Isn't Enough

Businesses needing short-term credit had better be prepared to offer their banks something in return -- something beyond interest payments

Half of corporate finance officers, from companies both large and small, say they are "required" or "strongly encouraged" to use their banks' other services--checking, savings, and investment accounts--if they want a loan for less than a year, according to a recent survey by the Association of Financial Professionals (AFP).

That may not be new. But now, 25% say there's also pressure to use their bank for debt underwriting; 16% say the same of equity underwriting and merger advice. Without short-term financing, companies spend more cautiously and make fewer investments.

"I doubt there is a company that isn't facing this," says James Haddad, a board member at the AFP and also vice-president of corporate finance at Cadence Design Systems. Haddad's company actually cut ties with one bank had that demanded too much other business.

A 1999 act of Congress (Graham-Leach-Bliley) is partly to blame, says Jim Kaitz, the chief executive of the AFP, since it lets commercial banks offer services that were once sold only by investment banks.

By Kimberly Weisul in New York

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