A community bank in Washington is getting loan referrals from the sort of group that might otherwise be a bank adversary.

Franklin National Bank has built a strong presence on Georgia Avenue, a commercial strip with many minority-owned businesses, through a two-year- old alliance with a community development group called Peoples Involvement Corp.

The effort was noticed by one local observer, Comptroller of the Currency Eugene Ludwig, who has urged "other banks in Washington to do the same thing."

It made sense to rely on a community-based group, said Robert Pincus, chief executive officer of $481 million-asset Franklin Bancorp, because "we didn't want to start this program and turn down all the loan applicants or do all the technical assistance ourselves."

Peoples Involvement's role, helping to screen loan applicants, could be a model for banks contemplating the revised Community Reinvestment Act regulations that took effect in July.

In 1994, before the Franklin-Peoples partnership, the bank's CRA rating was "satisfactory." With the Georgia Avenue loans on its books, the bank is now "outstanding."

Mr. Pincus said the bank had to find the right kind of community development group, with committed leaders who are familiar with the lending process and in close touch with local businesses.

Peoples Involvement's status as a nonprofit community development corporation allows it to take money from the bank and lend it out in small credit lines or short-term loans.

Franklin wanted to concentrate its loans and make a visible, local impact, so it chose to focus on Georgia Avenue rather than scattering its attentions across the capital city. That way, Mr. Pincus said, the businesses could support each other and perhaps feed off each others' successes, with a positive impact on the surrounding neighborhood.

Franklin executives have studied the performance of loans along the avenue, a heavily trafficked street with few large retailers, and now plan to take their formula to two other neighborhoods.

More than half the loans along Georgia Avenue are made through Small Business Administration guaranteed lending programs. Others are conventional bank loans or credit lines issued by the community development group. The community group shares the risk on microloans and smaller credit lines. Interest rates are one or two percentage points above prime.

Barry Watkins, a Franklin assistant vice president, said some people who could easily have qualified for conventional business loans never applied because borrowing from a bank was alien to them.

"Typically, the restaurateur who wants to open on K Street has a business plan and the type of information we would need to review in a packet," Mr. Watkins said of business owners in a prosperous downtown area frequented by lobbyists and lawyers. "Usually a business owner in a low- to moderate-income area doesn't have that expertise."

A case in point is Andrew Williams, co-owner of Madison Grocery, a Georgia Avenue convenience store. Mr. Williams obtained a commercial mortgage from Franklin, with People's Involvement Corp. as intermediary.

The monthly mortgage payments were less than what he had been paying in rent.

"I never thought of buying," said Mr. Williams. "But when the owners of the building went bankrupt, they offered it to me first."

Mr. Williams and his wife bought the building with their store on the first floor and several apartments that needed repairs above it. He plans to go back to Franklin later for a loan to renovate the apartments.

"It was very easy," he said. "I was really surprised. The first day we sat down and talked, they said, 'I think we can help you.' And they did help me right away."

Andree Gandy, director of Peoples Involvement Corp., said her staff is happy to do the bankers' legwork and share some of the credit risk.

"A lot of the smaller loans are really considered nuisance loans for most banks," she said. "But for us, it's our sole responsibility to retain the merchants along this corridor and make sure they prosper."

Previously, Ms. Gandy said, her group referred business owners to a lending program administered by the city government, which took months to review loan applications.

"Now the merchants get a 'yes' or a 'no' within a week," she said.

Franklin, which primarily caters to Washington businesses, does not sell many other, noncredit services in the disadvantaged area, nor does it garner many deposit accounts.

Loans are "their greatest needs," Mr. Pincus said. "They don't need all the bells and whistles of something like on-line banking."

With just nine branches, only one of which is close to Georgia Avenue, Franklin doesn't have enough convenient locations for borrowers to move their deposit accounts, Mr. Pincus said.

Still, Ms. Gandy said she is grateful for Franklin's work along Georgia Avenue. She added that she is eager to start screening applicants for more microloans.

"We can point to buildings and blocks where we made a difference, but Georgia Avenue is five miles long," she said. "We're ready for our fund to be replenished so we can make some more loans."

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