TORONTO - When Canadian Imperial Bank of Commerce decided to automate its loan decisions - criticized by small businesses as cumbersome and capricious - the country's second-largest bank couldn't just plug into a ready file of information.

Though consumer data are widely used, Canadian credit bureaus have no information on the nation's estimated 1.2 million small companies. That meant that the bank had to build a scorecard if it was to please customers and stave off regulatory criticism about lending practices.

The metamorphosis began in 1993, when the $112 billion-asset bank decided it could do a better in handling small loans - and make more money in the process.

"Our customers said they had a very high level of stress when they came to see our bankers," said Sandra Fraser, the product manager who is directing the effort to build the Business Class scoring system. "We knew we could do better."

The bank hired Atlanta-based CCN-MDS Division to construct a scorecard capable of handling loans of up to $100,000. When the project, the first of its kind in Canada, rolls out in November, the bank will have spent an estimated $425,000.

ut how quickly the project begins to pay off will depend on exchanging manual practices for automated ones - a problem confronting all banks studying a better underwriting process for small commercial loans.

Historically, applying for a business loan involved a face-to-face meeting where queries flew and the loan officer scribbled on a pad. Then, after the customer left, the information was manually entered in a computer. That process could take a full day.

In the end, the loan officer was given broad discretion in granting or rejecting a loan request. For would-be borrowers who were turned down, there was no clear reason why.

"The process has been opaque to the customer," said Ben Simmons, general manager of business loans. "They give us all this information and we then make a decision and they don't really understand why."

Small businesses were not the only ones bothered by the process. Legislators last fall held hearings in which many complained that banks cared more for corporate customers like the failed Olympia & York real estate empire than for Canada's small businesses.

"It was an appeal by the House of Commons for the banking industry to do their part," said Doug Melville, director of financial services policy at the Canadian Bankers Association. He notes that the industry has an estimated $26 billion in commitments to small businesses.

But even some bankers admit there was room for improvement. "There's a provincial attitude among banks in Canada. We don't like to lend money unless we believe it's going for a good cause," said Mr. Simmons.

While the move toward automating and internal scoring may address regulators' concerns, Canadian Imperial is mostly counting on the changes to pay off in other ways.

Mr. Simmons estimates the bank will add $24 million a year to the bottom line through efficiencies, improved loan writeoffs, and the ability to refocus lenders on selling a broad range of products.

"Our goal now is to find a way to say yes," he said. "Contrast that with the current system, where the lender will try to find a way to say no as a means of testing the application to its limit."

As in the U.S., the biggest challenge may well be turning old- line bankers into an army of salesmen.

"We created a status of a person who adjudicates credit. Now we have to create a status for selling," said Ms. Fraser. "We have to change the focus. We have to reward their efforts. Money does talk."

Adds Mr. Simmons, "We want them to focus on what is needed by the (small-business) customer as they take the credit information for a loan."

Ultimately, bank officials hope their investment helps them grow profitable market share. Already, one benefit of an automated scorecard should be a radical reduction in turnaround time for approvals. The bank now promises an answer within five days. That could drop to one day or less.

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