Small-business lenders must combine idealism with tough- mindedness to succeed in the community development side of the market, says a senior official at one of the country's top development banks.

In lending to small businesses in low-income or underserved areas, a cynical lender will wash out within months, said Richard Turner - and those who are too starry eyed are liable to give away the store.

To do their job, said Mr. Turner, senior vice president of Chicago-based South Shore Bank, lenders must believe in their mission but cast a cold eye on the value of collateral before making the loan. And then they must be tough on collections.

He spoke here last Wednesday at the American Banker Association's community development banking seminar.

"A lender has to have a split personality," Mr. Turner said. - "be a business owner's best buddy" but watch out for the bank's interests, too.

Making this task all the more difficult is a natural tension between creditors and entrepreneurs, he said.

"My cockeyed theory is that all businesses look at bankers as their natural enemies," he said.

If lenders start to feel too comfortable with the performance of a company, watch out, Mr. Turner said - it could mean trouble ahead.

"Monitoring is the key element," he said

Loan officers in economically challenged communities must immediately jump on any loan that seems to be starting to sour, he warned, because such loans can go bad fast.

For example, loans that are 30 days or more past due should be considered in the amber (for caution) zone, he said. Loans that are 60 days delinquent fall into the red zone.

"Most in this zone are going out," he said.

Mr. Turner declined to give delinquency or chargeoff figures of the bank's $120 million commercial loan portfolio, but said South Shore's historical chargeoff rate is 50 basis points. According to Sheshunoff Information Services, about 0.9% of the company's commercial portfolio was charged off in 1995.

Another ingredient for success, Mr. Turner said, is to make sure business lenders feel their role is important to the bank. Otherwise they will believe they're wasting their time, an attitude can translate into dud loans, he said.

"If they think the small-business area is the graveyard ... what you're doing is buying yourself losses," he said.

Mr. Turner also said that when it comes to lending to marginal businesses, the traditional ways are best.

The mass-marketing techniques now in vogue can backfire in this market, he said. "My experience tells me it won't work.

"I've always been derisive, contemptuous even, of that approach" to the lower end of the market.

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