American Express Co. is preparing to sell prequalified lines of credit to small-business customers across the country, according to an observer close to the situation.

American Express, which provides 1.5 million small businesses with corporate charge cards, already has said it intends to diversify the products it offers. The New York giant is busy organizing and hiring personnel with the necessary expertise. It could enter the fray as early as the first quarter of 1997.

"They want to be small-business lenders and are putting together the team to do it," said the source.

Such a move would be timely, industry observers said, given the growing competition for American Express' small-business card. The company is the dominant provider of such cards, but a growing number of bank and nonbank issuers are eyeing the niche.

"I think it's a natural for American Express to get into," said Michael Chagares, a managing principal at the Washington-based consultancy Furash & Co. "You need to offer revolving credit to remain competitive."

The move could help make American Express a dominant player, said Steven D. Hickman, director of small-business banking for Barnett Banks Inc., Jacksonville, Fla.

"I think American Express can be very formidable," he said. "I'm surprised they haven't done it earlier. Given the breadth of businesses they serve, I think it will be a good opportunity for them."

Senior vice president Richard Schrumpf, a former Chase Manhattan Corp. banker hired by American Express six weeks ago, is one of the people driving the project. He acknowledged that American Express has been testing a variety of revolving credit line products, but wouldn't discuss launch dates.

"We are working to build a full line of services for our small-business customers," said Mr. Schrumpf, whose experience with Chase included stints running the bank's New Jersey operations and overseeing small-business banking. Offering credit lines "is a natural extension," he said.

American Express has been experimenting with different credit line offerings for some time. Since early this year it teamed up with the Dayton, Ohio, unit of Columbus-based Banc One Corp. to offer preapproved lines of credit to small businesses. One solicitation from that promotion was for a $15,000 line with a 15.5% interest rate and $95 annual fee.

American Express also has been testing credit lines solo, said a company spokeswoman. Mr. Schrumpf would not comment on whether American Express would team up with anyone in marketing the credit lines.

American Express has shown signs of broadening its small-business offering on other fronts, including experiments with revolving credit cards and leases. The company also has been selling accounting services to small companies.

In going into new ventures, American Express brings a more than 10 years of experience in offering small-business cards. It also has data on its customer base of 1.5 million small businesses. This track record and knowledge will be key in new marketing efforts.

"They have a good data base to work with," the source said.

Nevertheless, American Express expects to take some hits when it goes out to market. The industry observer said the company predicted writeoffs of up to 3% in the first year.

Mr. Schrumpf wouldn't offer predictions on how the offering would perform, except to say, "we're very cautiously approaching the whole lending area."

He added, "preliminary trials have been very successful."

But all that's in the future. Right now, Mr. Schrumpf is busy looking for people to steer the incipient program.

"We're looking for people with banking and marketing experience," he said. "A lot of resources are available in-house already. We're building it daily."

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