Bank strategies for approaching the small-business market are breaking down into two distinct categories, according to Comptroller of the Currency Eugene A. Ludwig.

At a conference last week sponsored by the Comptroller's Office, Mr. Ludwig said one group uses credit scoring and is likely to securitize its small-business loans but the other specializes in hands-on personal service.

"There will be two approaches to this business-one a commodity approach and the other a hands-on, high-touch approach to lending," Mr. Ludwig said.

About 275 banks use credit scoring to make small-business loans, according to Fair, Isaac & Co., a San Rafael, Calif., company that sells credit-scoring software. That's up from 250 banks a year ago.

"We couldn't have grown our loans like we have without credit scoring," said Robert Kottler, senior vice president and manager of small-business banking at $12 billion-asset Hibernia National Bank in New Orleans.

Mr. Kottler said his bank has increased the number of its small-business loans outstanding to 30,000, from 1,000 in 1993, while reducing the average loan size from $150,000 to $35,000.

He said banks will securitize small-business loans to replace deposits (which are in decline) as a source of loan funding.

But William Gene Payne, president and chief executive officer of $97 million-asset Gateway National Bank, Dallas, said it does not use credit scoring or securitize loans.

Mr. Payne said community bankers maintain closer relationships with local companies and have a greater interest in small businesses' survival because they review loan requests individually and hold the loans on their books.

"Securitization is a nonevent for community banks," he said. "If we sell the loan, what motivation do we have to provide ongoing advisory service to small business?"

Mr. Ludwig said more banks are using credit scoring to make quicker loan decisions and reduce their processing costs but that banks focusing on personal service will still have customers.

"There is clearly a trend toward credit scoring," he said, "but I don't think that will eliminate the high-touch approach. There will be a lot of competition between these approaches."

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