With California cluttered with banks vying for small-business customers, Washington is shaping up as the next battleground for lenders trying out their latest strategies.

Three California-based Small Business Administration lend-ers recently opened offices in Seattle. And BankAmerica Corp. and KeyCorp are taking small-business loan applications by phone.

"There's a very entrepreneurial spirit in the Northwest and it's a wonderful place to compete," said Robert Jones, KeyCorp vice chairman. "It's a very strong economy with lots of small businesses."

BankAmerica's subsidiary Seafirst Corp. and Cleveland-based KeyCorp have extensive branch networks in Washington, but lending by phone allows them to serve entrepreneurs who don't want to go to a branch.

"The people that use it the most have lots of time constraints," Mr. Jones said.

KeyCorp is offering a loan-by-phone service modeled on one it offers to consumers. Mr. Jones said the bank makes 25% of its consumer loans by phone.

Bank of Commerce, Wilshire State Bank, and Imperial Bancorp hope to make SBA loans through lending offices in Seattle, where they are cannot legally take deposits.

The California bankers said they expanded their SBA lending north to Seattle because the market is more fragmented than in their home state. About a dozen big SBA lenders dominate the California market. The only big one in based in Washington is $354 million-asset City Bank of Seattle, the nation's ninth-largest SBA lender.

"If you only have one main competitor and you know their weaknesses, its easy to beat them," said Han Park, senior vice president and SBA manager for Wilshire State Bank.

David Bartram, senior executive vice president for Bank of Commerce, said his bank wants to reach borrowers that may not be served by the more established Seattle lenders.

"There aren't as many lenders, and rates and fees aren't being cut as much there," Mr. Bartram said. "Nothing is more competitive than Southern California."

The bank SBA lenders, Wells Fargo & Co., Money Store, and thrifts moving away from their traditional focus on mortgage lending all compete for small-business customers in California.

But Washington is getting tougher. In addition to the California-based banks, said Robert Merideth, the SBA's Seattle director, several smaller nonbank lenders have opened offices in the city.

"We've had quite a few new entrants, and I'm very pleased to see this type of competition," Mr. Merideth said. "But every time you turn around, another bank has been merged."

After a merger, more than 17% of small businesses switch banks, according to a study by the National Federation of Independent Businesses.

That means a chunk of small-business customers are likely to come up for grabs as Portland, Ore.-based U.S. Bancorp. consummates its merger with First Bank System Inc. this fall.

"We see an awful lot of opportunity there," Mr. Bartram said.

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