BankBoston Corp. was hoping to score big with New England small businesses when it mailed out more than 250,000 applications for credit lines this spring.

The effort flopped; few entrepreneurs signed up.

"We haven't had much success," said Kenneth Mueller, BankBoston vice president for small business and manager of its loan processing center. "It's not a very directed marketing effort."

Other bankers know the feeling. Robert Kottler at Hibernia Corp. in Louisiana, for example, said it is extremely difficult to determine which prospects will respond to what offer.

The conundrum over how to target small businesses is especially daunting as the market crowds up. A Consumer Bankers Association survey showed 24% of banks mailed small-business credit offers last year, up from almost none in 1992.

Another study indicated that the vast majority of small-business owners rejected direct-mail credit offers because they did not have a need or did not have a relationship with the sender.

Of 900 entities surveyed by Payment Systems Inc. of Tampa only 8% responded to credit mailings from their own banks and 3% responded to offers from other banks.

"The mailings aren't targeted," said Payment Systems vice president Maria Erickson. "The people who get them just don't need credit at that time."

One Delaware bookstore owner, for example, has been inundated with bank offers in the past nine months: three from Wells Fargo & Co. and one each from AT&T Capital Corp., First Union Corp., Signet Banking Corp., and Advanta Corp. There were also solicitations for other small-business services from BankAmerica Corp. and PNC Bank Corp.

The Delaware storeowner, who uses trade credit and retained earnings to finance her business, did not respond to any of the credit offers-a reaction that illustrates a problem for bankers who are trying these techniques for the first time in an area new to credit mass-marketing.

Mr. Mueller at BankBoston said he has no way to determine if he should mail offers for overdraft protection to business owners who frequently pay overdraft fees or to those who don't.

"All you have are gut instincts," he said.

Robert Kottler, senior vice president for small-business banking at Hibernia National Bank in New Orleans, said his direct mailings are effective only with existing customers or in areas with bank branches.

Mr. Kottler said his lending system allows him to screen out entrepreneurs with poor credit histories or those who have never borrowed, but he wants more information.

"Until we have better tools, business owners are a tougher sell than consumers are," Mr. Kottler said.

Bankers say they expect response rates to be higher on small-business credit line offers than on consumer credit cards because there are much fewer business offers vying for attention.

Plus, consumer credit issuers have the benefit of years of experience. They have collected reams of data, using it in sophisticated analytical and prospecting tools.

Many banks have just started issuing small-business credit on a large scale and are still struggling with the techniques of targeting.

Bankers say they would like to match information at business owners with financial data about the business. Others want to mail offers for different products, such as unsecured credit lines, credit cards or overdraft protection, depending on the businesses credit history.

Fair, Isaac & Co. and Experian Corp. have just developed a credit scoring tool to help banks identify desirable small-business borrowers. Such products have been available for consumer credit cards for years and are being continuously refined.

Rather than mailing to all small-business owners in a particular area, Ms. Erickson of Payment Systems said banks should target growing businesses that are in existence five to seven years.

Sharon O'Connor-Clarke, senior strategy manager for Fair, Isaac & Co., said bankers should study the responses to direct mailings to determine which products appeal to which borrowers. Such analysis could ensure that offers for revolving credit lines do not go to entrepreneurs who need term loans.

"The ability of a credit grantor to get the right product to the business owner is going to drive their profitability," she said.

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