Bankers who want to build a niche in small-business lending had better hurry.

That's the message offered by Jerry Bowman, executive vice president in BankAmerica's business banking division, and Charles Wendel, president of Financial Institutions Consulting, during a teleconference last week sponsored by Robert Morris Associates.

Mr. Bowman said the market was quickly becoming so competitive and so specialized that few banks would be able to earn a profit on small-business loans of less than $100,000.

"Banks have got to find their niche, and they've got to be very good at it," Mr. Bowman said. "By the year 2000, there are going to be a very few players serving the lower end of the market."

A study by Financial Institutions Consulting said market leaders in small-business lending have taken the following steps:

*Redesigned their organizational structure to eliminate internal conflicts that could inhibit the sales process and curtail the banks' ability to manage their expenses.

*Linked small-business banking officers' compensation to their success in selling a variety of small-business products and building relationships with customers.

*Offered specialized products to a limited set of targeted customers through a convenient but profitable distribution channel, such as direct mail or telephone.

Mr. Wendel said banks should view small-business customers as the upper end of the consumer credit market rather than the bottom of the commercial credit market because owner-operated companies compose the largest small- business segment.

Banks should offer their small-business customers products such as equipment leasing, tax services, and payroll services that are traditionally thought of as nonbank products, Mr. Bowman said.

Mr. Wendel warned that banks' time to reshape strategies is limited because the largest banks are gaining share in the small-business market.

As of June 1996, banks with assets greater than $10 billion dominated one-quarter of the small-business loan market, an increase from 22.6% at midyear 1995.

At the same time, the competition from nonbank lenders, brokerage firms, and insurance companies has increased, forcing bankers to reevaluate their small-business strategies.

"This is a very profitable franchise for the banks today," Mr. Wendel said, "but it is one that is under a tremendous amount of stress from our competitors."

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