Over the past four months, BankAmerica Corp. has consolidated the approval and administration of small-business loans in California and five other western states into a processing center in Pasadena, Calif.
The centralization is a big step in the $232 billion-asset company's transition to a more computerized method of handling small-business loans. Indeed, BankAmerica, which is based here, plans to consolidate small- business loan processing for all its 11 states in Pasadena by yearend.
Like most big banks, BankAmerica is switching to centralized administration and computerized approval of small-business loans in order to cut costs and to increase the number of loans it can make.
The move is not universally embraced. Executives at some community and regional banks say computers are putting looser terms and conditions on loans than bankers would. And the centralization may alienate customers who want a more personal touch.
But Jerry L. Bowman, executive vice president and head of BankAmerica's business banking division, said centralization and computerization are good for both bank and customers.
Indeed, computerization has allowed BankAmerica to reduce the paperwork that small-business proprietors must do to apply for a loan. Also, starting this month, BankAmerica has programmed its computers to offer lower interest rates automatically to more profitable, less-risky customers.
"We want to give the benefit to the clients, which we are able to do because we have actually reduced the cost of processing through more and more automation and simplifying the product and the application form," Mr. Bowman said.
Big banks have been centralizing administration of small-business loans since the early 1980s. Computerized approvals, using the same type of credit scoring technology employed for credit cards, is a more recent development. BankAmerica and crosstown rival Wells Fargo & Co. are at the forefront of both trends.
With credit scoring, computers make credit decisions by looking only at a company's and its proprietor's credit histories. In traditional analyses, bankers evaluated a small business' general ledger, tax returns, accounts receivable, and business plan to decide whether a loan should be made.
Mr. Bowman said BankAmerica began using credit scoring to approve loans for a limited number of small-business products in May 1994. Credit scoring is being used on more small-business products as operations are consolidated in the Pasadena center.
The center began processing small-business loans for California in November. It subsequently took over processing for Arizona, Oregon, Nevada, New Mexico, and Texas. Later this year, the center will start handling small-business loans for the rest of the states in which BankAmerica operates.
The center uses credit scoring exclusively to approve small-business loans of less than $50,000. This procedure is called "express processing." To get such a loan, a business owner must complete a one-page application with a loan agreement on the back.
Loans of $50,000 to $100,000 are approved with a mixture of credit scoring and a brief analysis by bankers of a minimum amount of additional financial information. This is called "streamlined processing."
Larger small-business credits - commercial and industrial loans of up to $1 million, and commercial real estate loans of up to $2 million - are given a traditional analysis by bankers working in the Pasadena center or one of two other regional centers.
Mr. Bowman said BankAmerica plans later this year to increase the size of credits handled by the express process to $100,000. The maximum size of credits handled in the streamlined procedure would rise to $250,000.
Using computers to approve loans cuts the processing cost per loan to roughly $50, from about $300.
Frank J. Bonetto, executive vice president of $3.3 billion-asset Bank of the West, said credit scoring makes big banks tough competitors. But he said he expects to pick up business from people who want a more personal touch.
