A handful of direct marketing powerhouses will dominate the lower end of the small-business loan market by the year 2000, an Advisory Board consultant predicted.

By applying aggressive direct marketing strategies, refined data-base management, and credit-scoring technology in wide geographic markets, a group of 11 institutions will control 60% of the market for loans of $25,000 or less, said Vikram Capoor, practice manager of the Business Banking Board, a unit of the Advisory Board Co., a Washington-based research firm that follows the financial services, health care, and human resources industries.

The market currently is widely fractured, Mr. Capoor said. But lenders, empowered by new technologies and direct marketing methods, are on the cusp of a radical transformation.

"Within four years, the small business loan market for $25,000-and-under credits will become as concentrated as the credit card market is today," Mr. Capoor said. In April, Mr. Capoor introduced a study titled "Cleared for Takeoff: Matching Strategy to Customer Needs," which analyzed, among other things, the profitability of different types of small-business loan marketing and distribution.

The lenders that win out will leverage the credit scoring and predictive modeling technologies - as well as the direct-marketing techniques - that built the credit cards titans, Mr. Capoor said. And although 20 years passed before a few credit card behemoths emerged, the pace will be radically accelerated on the small-business side.

Mr. Capoor said his prediction was based on forecasting the growth of 11 aggressive lenders that are using direct mail inside - and, in a few cases, outside - their marketplace.

Many industry observers and executives predict that some big banks - and nonbanks - will walk off with a good chunk of market share in the foreseeable future. But they differed as to how much they will take and how soon.

Charles Wendel, president of New York-based Financial Institutions Consulting, disputed Mr. Capoor's prediction.All predictions are guesses, no?

"I don't think it's going to be that concentrated that fast; that's only four years," he said. "If you were going to give me a time frame of 10 years and a 40%, 50% concentration, maybe. But not four."

Variables such as an economic downturn or customer reluctance to accept direct-mail credit offers would stymie rapid concentration, Mr. Wendel added.

As one in the trenches, Jerry L. Bowman was reluctant to make precise predictions.

"I don't know what the right number is, but there will be a small group of lenders dominating the business as the data bases get better," said Mr. Bowman, executive vice president of BankAmerica's business banking division, based in Pasadena, Calif.

Sources predicted BankAmerica to be one of the big players down the road. Mr. Bowman certainly thinks so.

"In an eight-hour shift, we can handle 4,000 applications, and that's just in one center," he said. BankAmerica has three processing centers.

Most of the loans that BankAmerica makes are branch-generated, although it is one of the few using direct mail to market preapproved credit lines to small businesses in its Westernmeaning western U.S.? Then lc and/or add -U.S. market.

The direct-mail approach is both more effective and cheaper than the traditional branch approach, Mr. Capoor said.

Mr. Capoor pointed to an unnamed $7 billion-asset southern bank that last year raked in $58.0 million in small-business loans through a direct-mail campaign versus $40.8 million through its 100-branch network.

"You would need a hell of a lot of branches to keep up with the competitors," he said.

Further, a net present value analysiswhat mean here? an analysis of net present value taken at?? of branch-originated $60,000 small-business loans at 12 regional and money-center banks revealed that the costs of making the loan exceeded the returns, Mr. Capoor said.

Mr. Bowman said that by streamlining the loan application and underwriting processes?, BankAmerica has been able to profit from its branch-originated credits.

Besides BankAmerica, other institutions - including Fleet Financial Group, Boston; Barnett Banks, Jacksonville, Fla.; and Banc One Corp., Columbus, Ohio - are selling preapproved lines through direct mail. And First Union Corp., Charlotte, N.C., is using direct mail inside and outside its territory to promote its small-business credit card.

But so far, Wells Fargo & Co., San Francisco, is the only bank to operate direct-mail small business loans on a national scale.

Despite the findings, Mr. Bowman and other bankers expect the branch to remain a part of their strategic approach.

For example, KeyCorp, uses direct mail to push credit and other products to customers and prospects in its markets. But having a local, consulting presence remains an important part of the Cleveland bank's strategy.

"We haven't gone and spent money going out of our market, because we want to stay in-market so a relationship manager" can work with customers, said Jackie Bear-Cowdery, vice president of small-business services for KeyCorp.

Wachovia Corp., Winston-Salem, N.C., believes its future relies both on the branch and on direct-marketing tactics, said Cheryl Strode, senior vice president and manager of business banking support services.

For example, the bank has used direct mail in making preapproved Visa small-business credit card offers. This summer it will send direct mail promoting noncredit products to prospects inside and outside its traditional market, Ms. Strode said.

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