KeyCorp and First Union Corp. are superregionals with a lot in common - but not when it comes to small-business strategy.

The industry has come to view them as philosophical opposites: KeyCorp relying on relationship managers dealing with clients face to face; First Union leaning more toward the "lending factory" approach of mass-marketing by phone or mail.

How these strategies play out will influence the followers of these two small-business pioneers.

"With small business, banks are still evolving and trying to figure out what works best," said Cynthia Glassman, managing director of Furash & Co., a Washington-based consulting firm.

Lending factories are currently in favor. Proponents speak of the benefits of lower costs and quicker response times.

"Our customers want to get their loans approved faster, rather than the old waiting for weeks for an answer," said Sharon W. Bryant, head of small- business banking for a First Union affiliate, First Union National Bank of South Carolina.

But many banks are still reluctant to abandon the human relationships that are a hallmark of commercial banking. Even Wells Fargo & Co., which has epitomized the factory approach with nationwide direct-mail promotions of small-business loans, uses relationship managers for the top 5% of its customers in its 10-state core region.

"It's very difficult to have a relationship over the phone," said Steve Hickman, director of small-business banking for Barnett Banks Inc., which also blends the two styles.

Sandra Maltby, executive vice president of Cleveland-based KeyCorp's small-business services, said customers want bankers who understand their needs - an ingredient direct-mail cannot deliver.

"The message we've gotten from our customers is, 'Be there when we need you,'" Ms. Maltby said.

First Union moved relatively recently to the factory structure as a response to nonbank lenders that have taken market share away from banks.

Especially with Small Business Administration lending, nonbanks have standardized offerings with centralized underwriting and reliance on credit scoring.

"There is an opportunity to compete against local institutions with a faster, more convenient answer," said Les Dinkin, managing principal of NBW Consulting Group, Westport, Conn.

The relationship manager approach evolved from traditional community banking, where bankers make sales calls and work to assemble products best suited to individual customers.

Of course, face-to-face interaction is more expensive than machines.

When First Union of Charlotte, N.C., acquired New Jersey-based First Fidelity Bancorp. in 1995, it cut 20% of the Northeast small-business lending staff and created a centralized lending office. The bank recently cut 80 relationship manager positions in North Carolina.

By contrast, even though KeyCorp recently announced restructuring plans that will eliminate 2,700 jobs, it is leaving the small-business department intact.

Ms. Maltby said her staff has been spared because its relationship approach, resulting in sales of a variety of products to each customer, generates significant revenue.

"We know the potential for a very deep relationship is there," said Ms. Maltby, adding that some small-business customers use as many as eight banking products.

KeyCorp has centralized its underwriting, but that should not make a difference to customers. Top-tier customers interact only with their assigned relationship managers. Mid-level customers work with sales managers, who provide a lesser degree of personalized service.

In contrast, a small-business customer who walks into a First Union branch in the Northeast may pick up a phone to talk to a lender in the Philadelphia regional office.

To be sure, relationship management and centralized lending are not black and white. While large banks lean toward the credit-factory style, many blend the two styles.

Barnett Banks centralized underwriting and uses credit scoring, but still has local small-business lending officers designing individual loan packages.

"Face-to-face is a very expensive way to do business," Mr. Hickman said. "You are able to reduce the expenses by selling more to your customers."

Even factory-oriented First Union is leaning the other way, testing a program in South Carolina to profile small-business borrowers and work with other areas of the bank on potential cross-selling opportunities.

"In the past, everything was driven by the deal and neither the banker nor the customer took it to the next level," Ms. Bryant said.

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