Big banks chasing small-company accounts.

Local community banks fight to hang on to clients

California's big banks are showing a growing interest in L.A.-area small businesses, and they are fast becoming major lenders to this market segment, which has traditionally been dominated by local community banks.

In 1995 alone, San Francisco-based Wells Fargo Bank plans to lend some $550 million to small businesses in Los Angeles County. That figure would be a significant increase from the $539 million Wells Fargo lent to L.A. County small businesses during the 18-month period from June 1993 through December 1994.

Kathleen Shilkret, a Wells Fargo spokeswoman, explained that large-scale lending to small businesses is a relatively recent phenomenon for big banks in California. She added that Wells Fargo has pursued small-business lending for about six years, while other big banks have joined the sector more recently.

"Big banks like Wells have been going after small business because that's where the money is," she said, pointing out that, as bigger corporations have downsized over the past few years, small businesses have expanded to fill the gap.

Don Hance, vice president and manager of the small business banking program at San Francisco-based Union Bank, said that bank has also made moves to increase its small-business lending. To better serve smaller borrowers, the bank introduced a centralized approval system last year for loans under $100,000. Under the new system, most loan applications can be processed in two days or less, Hance said.

In addition to boosting their overall lending activity, California's big banks are also using small-business loans to attract small-business clients to their other banking services. "The small companies we lend to will often come to us for their other banking needs, such as savings and checking services," Hance said.

Community banks respond

In response to the inroads big banks are making into L.A.'s small-business sector, local community banks are offering new and improved services of their own - geared specifically to small companies.

Kristine Chung, vice president and manager at Beverly Hills-based City National Bank, said that bank established its own small-business lending center, called the "loan center," about a year ago in response to increasing competition from bigger banks for small-business clients. Using City National's loan center, small firms can now receive responses to their loan applications for up to $250,000 in three days or less.

But while some local community banks are adding new services to compete with their big-bank rivals, others contend that a continued focus on customer service will be more than sufficient to keep them competitive in the small-business lending arena.

Bob Kummer, chairman and CEO of downtown L.A.-based First Business Bank, which lends primarily to small and medium-sized businesses, said First Business will be able to maintain its market share by offering borrowers a level of personalized service unavailable at big banks.

"The big banks are trying to develop local business centers for their smaller loans and automate those centers as much as possible," he said, adding that a single loan officer at one of these new centers may handle as many as 100 to 150 clients. "The problem with automation is that customers rarely meet with bank officers and, thus, get very little input from the bank about their business," he said.

Kummer pointed out that First Business meets with its borrowers every quarter to give them financial input on their business activities.

Overall volume rises

Within the L.A. area, lending institutions of all sizes have reported steady growth in small-business loan volume over the past year.

According to John Karevoll, financial editor of Dataquick Information Systems, based in Running Springs, Calif., the total volume of L.A. County commercial property-secured loans of $500,000 or less was $256 million for the fourth quarter of 1994, up more than 40 percent from the $182 million of such loans made during the first quarter of 1994 (see accompanying graph). The lion's share of this lending most likely went to small businesses, since loans secured against commercial properties are usually made to businesses rather than individuals, and the relatively low $500,000 ceiling effectively screens out most loans to large companies, Karevoll said.

Among private-sector lending institutions, Karevoll's statistics consistently found Wells Fargo to be the top lender to small businesses in Los Angeles County. Throughout 1994, Wells Fargo commanded anywhere from 2.1 to 3.5 percent of the market share for small business loans in the county.