The Small Business Administration is under fire from large banks for its annual "small-business friendliness" ranking.

Representatives of big banks charge that the state-by-state rankings- which small-business owners rely upon to assess the receptivity of lenders to their needs-is weighted against them because of a design flaw.

For example, NationsBank Corp., which the SBA ranks as the largest overall lender to small business, is listed as having no small-business loans-and thus no "friendliness" rating-in South Carolina, Virginia, Maryland, and the District of Columbia. Because of interstate branching laws, NationsBank's small-business lending in those states is handled by its North Carolina bank.

Others said the ranking fails to describe the small-business banking market in many areas.

"I don't think the study does a valid job of assessing what we bring to the market," said Janet Garufis, senior vice president and business banking manager at BankAmerica Corp., which got a mediocre score of 22 out of a possible 40 in California.

The SBA rated all 9,670 U.S. banks of from one to 40 on a state-by-state basis. A 40 identifies the banks most likely to lend to small business.

Entrepreneurs who inquire about loan availability from the several small-business consulting centers are often told how banks in their markets score.

The SBA examined banks' number of small-business loans, dollar value of small-business loans outstanding, and ratios of small-business loans to total assets and to total business loans.

Using data from June 1996 call reports on commercial loans of less than $250,000, the SBA statisticians gave each bank a score of one to 10 in each category and added the four categories for a composite "friendliness" rating.

Banks with assets of less than $500 million generally got higher "friendliness" ratings than large banks. For instance, in 43 of 50 states, the highest-rated bank had less than $500 million of assets.

Large banks scored lowest on the ratios of small-business loans to total assets and to total business loans.

"It distorts the information," said Donald Hance, manager of small- business banking for Bank of Tokyo-Mitsubishi's Union Bank of California, which got a 22.

But banks that got high ratings tell a different story.

"We're very pleased about it and feel it accurately reflects our commitment to serve small-business clients," said Sanford Belden, president and chief executive officer of Community Bank in Canton, N.Y.

Community Bank, which got a 32, was ranked as the most "small-business friendly" bank in New York with assets of $1 billion to $10 billion.

"The study is pretty fair overall," Mr. Belden said. "The criteria reflect accurately how a bank concentrates its lending activity."

Banks like Mr. Belden's often send notices to local newspapers and circulate newsletters to customers touting their SBA ranking.

The SBA sends copies of its study to Small Business Assistance Centers and offices of the Service Corp. of Retired Executives, which counsel entrepreneurs. The agency also has posted the study on the Internet to help entrepreneurs evaluate banks.

But Steven Hickman, director of small-business banking for Barnett Banks Inc., said the study would not help small businesses satisfy their financial needs.

"It's not a fair representation of banks' strategies or their willingness to lend to small business," he said. "If your needs are broader than loans and deposits, a large bank will serve you better."

Martha Hayes, First Union Corp.'s director of small-business banking, said the study does not reflect her bank's commitment to entrepreneurs. "A better indication would be the loan volume we do," she said.

In response to complaints last year that the state-by-state study favored smaller banks, the agency has added a page listing the highest- rated banks in each state by asset size.

Despite the grumbling, Charles Oh, senior economist in the SBA's research office, said the ratio of small-business loans to total assets is the best measure of a bank's commitment.

"The fact is that the large banks are not as dependent on small-business loans so they are not as active in small-business loans," he said.

The study of small-business lending in New York State includes 10 banks with assets of less than $500 million and three larger banks. The New York list does not mention Chase Manhattan Corp. or HSBC Holdings' Marine Midland Bank, which have the largest portfolios of small-business loans outstanding.

In California, $229 million-asset Scripps Bank, La Jolla, got a 40 for its 1,067 loans and was listed as the most "small-business friendly" bank in a fiercely competitive state.

"There is no question about it, our focus is on the small-business and professional market," said Ronald Carlson, Scripps president and chief executive officer. "The major banks are serving a much broader market."

In comparison, San Francisco-based BankAmerica, Union Bank of California, and Wells Fargo & Co., which have dramatically larger small- business loan portfolios, all scored below 25.

"This ranking would imply that Union Bank and Wells and Bank of America are only moderately focused on small businesses," Union Bank's Mr. Hance said. "I know that's not the case."

BankAmerica's Ms. Garufis said the number of small-business banking products offered and the speed at which banks respond to loan requests give a better indication of their attention to entrepreneurs.

"On a market-by-market basis, we are doing as good a job if not a better job than the small, local banks," she said, adding that Bank of America makes more loans in San Jose, Calif., than local banks with higher ratings.

First Union, Charlotte, N.C., which has separate bank charters in each state where it does business, had 14,997 loans totaling $539.7 million in its home state and a rating of 22.

"I'm not sure they are comparing apples to apples," said First Union's Ms. Hayes.

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