California is shaping up as the country's prime battleground for an increasingly competitive group of small-business lenders.

The latest entrant is American Express, which will provide credit and accounting services to small businesses in the Los Angeles area.

American Express is entering one of the most hotly contested small- business markets in the country. California lenders, including Glendale Federal, Union Bank of California, BankAmerica Corp., and Wells Fargo & Co., have adopted aggressive strategies to target small-business owners there.

And the state is home to hundreds of business-oriented community banks, some of which are the largest Small Business Administration lenders in the country.

This competitive shakeout in California could foreshadow the small- business banking strategies that will be used as regional lenders move nationwide.

New entrants to the small-business lending market, such as American Express, are changing the competitive dynamic, said William Corcoran, Union Bank small-business manager for Los Angeles and Orange County.

"The pricing is being driven down by the number of players in the market, but there are still good spreads," Mr. Corcoran said.

No California bank, brokerage, or card company now provides accounting services to small businesses, says Sarah McKenzie, vice president of business development for American Express' tax and business services.

American Express, which will introduce the small-business services next in Chicago, plans to open offices in 50 large U.S. cities within three years. It will also offer accounting and tax planning services through five certified public accounting firms it acquired in the Los Angeles area, and it plans to acquire other accounting firms.

"We're not trying to replace a bank's relationship," Ms. McKenzie said."But there are things we can do uniquely and better than a bank."

American Express offers credit lines up to $25,000, equipment loans and leases, commercial real estate mortgages, subordinated debt financing, and asset-based lending.

American Express has no business deposit accounts, but it has individual investment management accounts and is developing a similar product for small businesses.

About 100,000 Los Angeles-area small-business owners either use the accounting firms acquired by American Express or have American Express corporate cards.

The company's moves in California follow a year in which several major banks and thrifts have come up with innovative strategies for targeting the niche.

Union Bank, a unit of Bank of Tokyo-Mitsubishi Ltd., combines a decentralized lending structure with a focus on international business.

It provides financing for small import-export firms and offers country analysis and computer banking services to small-business customers.

In yet another key strategic move, Wells Fargo, which lends to small- business owners nationwide with a one-page mail application, recently announced plans to lend $10 billion to women entrepreneurs in the next decade.

Among thrifts, Glendale Federal is picking up relationship officers displaced by Wells Fargo's acquisition of First Interstate Bancorp. and expanding its small-business offerings.

And Glendale plans to purchase rival TransWorld Bancorp., which specializes in small-business lending and is one of the state's largest SBA lenders.

"One of the key reasons why the merger is attractive to us is the quality of TransWorld's personnel," said Stephen Trafton, Glendale Federal chairman and chief executive.

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