Union Planters Corp. will raise the stakes in small-business lending in the Southeast this week by mailing pre-approved applications for business credit lines to potential customers.

"We're being forced to do it," said Ron Alsbrook, senior vice president for small-business lending at Memphis-based Union Planters. "All the big banks up north or from California are sending them to our customers."

Direct-mail promotion of small-business loans was pioneered by San Francisco-based Wells Fargo & Co., but banks ranging from Charlotte, N.C.- based First Union Corp. to New Orleans-based Hibernia Corp. followed suit.

But Union Planters is coupling its direct-mail campaign with a feature the out-of-state banks can't offer-sales calls followed up by face-to-face visits from its branch lenders.

Union Planters will mail the pre-approved applications for credit lines up to $25,000 first in the Memphis area and later in other cities where the bank has offices, Mr. Alsbrook said.

Union Planters' hometown competitor First Tennessee National Corp., which custom-designs individual small-business loan packages, is thinking about direct-mail sales as well.

"We are evaluating borrowing products that can be streamlined for small businesses, and that goes hand in hand with credit scoring," said Randy Drake, First Tennessee's business market manager.

The $11 billion-asset Union Planters increased its small-business loan portfolio 24%, to $943 million, between June 1995 and June 1996, according to data compiled by American Banker. During the same period, First Tennessee increased its portfolio 13%, to $1 billion outstanding in small- business loans.

Both Union Planters and First Tennessee have been using credit-scoring systems, similar to those used by large banks that mail loan applications, to guide their lending decisions for the last year.

Credit scoring is a method of statistically assessing loan risk that allows computers rather than lending officers to evaluate loan applications.

Credit scoring enables banks to set up factory-style lending centers that churn out loans by mail or telephone within 24 hours and decreases the cost of making small-business loans.

Nationwide, about two-thirds of banks use credit scoring to evaluate loans under $100,000, according to the Federal Reserve's January Senior Loan Officer Survey. The survey did not address the use of credit scoring to mail pre-approved loan applications.

Pre-approved direct mail loan applications often help banks attract new customers because the small-business owners usually do not need to provide financial statements or documentation.

To compete with other banks sending pre-approved loan applications in its market, Hibernia began mailing its customers invitations to apply for credit lines last summer.

But Hibernia still asks applicants for their businesses' financial information and rejects customers who do not meet the banks credit standards, said Robert Kottler, Hibernia senior vice president.

"Our customers are responding to us, but we don't know if that means they aren't responding to other banks," Mr. Kottler said.

Despite the increased competition in the small-business market, Tom Wright, president and chief executive of the $2 billion-asset Enterprise National Bank in Memphis, said his bank would not pre-approve borrowers.

"I think you still have to look at everything on a case-by-case basis," Mr. Wright said. "Otherwise banks can get themselves into trouble."

In addition to their direct-mail loan applications, Union Planters is unveiling new cash-management products, tools for electronic payment of payroll taxes, and a computer banking service.

"Small business is the hot button for all banks right now," Mr. Alsbrook said. "Our bank's objective is to be a regional leader."

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