Facing stiff competition at home and enticed by the potential for quick profits, California community banks are rushing to set up Small Business Administration lending offices in other states.

San Diego's Bank of Commerce opened three Texas offices in June; SierraWest Bancorp, Truckee, began expanding into Oregon, Colorado, and Tennessee last fall; and GBC Bancorp, Los Angeles, targeted New York and Seattle during the first quarter.

The movement was prompted by heavy loan demand in entrepreneurial California, where nearly one-fourth of all the nation's SBA loans were made last year.

The strategy also lets banks diversify balance sheets outside their home markets at minimal expense.

"It's a cheap way for banks to add revenue," said Hans Schroeder, an analyst at San Francisco investment bank Hoefer and Arnett. "They don't have to spend much to get an office up and running."

Indeed, there is nothing fancy to SBA lending, bankers say. Most out-of- state offices are small-500 square feet is usually plenty-and scantily furnished with phones, desks, and a computer.

No safe, vaults, or teller windows are needed, and all back-office operations are handled back home.

It's not impossible for the smallest of community banks to plant an SBA lending outpost.

Last summer Frank V. Riolo, president and CEO of Borrego Springs Bank, 80 miles from San Diego, opened an SBA office in Tucson, Ariz., and quickly followed up in Las Vegas and Portland, Ore.

"In this small desert town, we had limited growth and loan prospects," Mr. Riolo explained.

So the $55 million-asset bank, which is 60% owned by the Viejas Indian Tribe, toyed with paths to expansion.

A Borrego Springs lending officer, equipped with cell phone and laptop computer, drove toward San Diego to drum up SBA business. Loan volume picked up, and an office was established in the San Diego suburb of La Mesa.

Mobile loan officers were sent soon thereafter to Los Angeles and Bakersfield, Calif. Now Borrego Springs is scouring Denver, Albuquerque, and Phoenix for similar opportunities.

SBA lending makes up 95% of the bank's business, Mr. Riolo said.

Bank of Commerce, which sets up shop near busy freeways and sprawling office parks, began its push in 1991 and has opened 17 offices.

The $717.9 million-asset bank now has its radar set on Boise, Idaho; Salt Lake City; Chicago; and Atlanta.

"It's a lucrative niche with an active secondary market," said Peter Q. Davis, chairman and chief executive officer at Bank of Commerce.

Government-guaranteed SBA lending programs are uniform-the paperwork doesn't change from state to state.

One major obstacle for community banks entering new markets is finding all-star lenders. Placing a classified advertisement in the local newspaper won't reel in a seasoned loan officer, bankers said.

Both Mr. Davis and Mr. Riolo said they use headhunting firms to find top SBA lenders.

These lenders are typically paid salaries of $40,000 to $50,000, plus 1% or 2% commissions per loan.

The business has become so lucrative that lenders, in some cases, end up raking in almost as much as their bank's CEO.

"The day their salary is higher than mine ... I expect to see a raise too," quipped Mr. Davis.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.