Edited by Fred Strasser

It's an obscure niche for American Express and AT&T Capital, but the two giants think they've found a new market: loans of $25,000 or less for small businesses solely for the purchase of equipment.

The companies' joint venture, American Express CapitaFinance, will launch the loan program next week, mailing pre-approved offers to many of American Express' 1.6 million Small Business Card holders. (Exactly how many, the company won't say.) The loans can be used for all business equipment purchases except cars, trucks, and so-called "environmentally sensitive" items such as underground storage tanks.

Interest rates for qualified borrowers, who will be pre-screened by computer, will be "competitive" with traditional equipment financing, and terms will stretch from one to five years, company officials say. For example, payments on a one-year loan for $11,000 in equipment will run roughly $1,000 per month. On a five-year plan, borrowers can expect to pay about $270 per month for 60 months, or $16,200 total.

AmEx says the offer's main benefits include quick and easy access to financing and itemization on card statements, where the monthly payment is billed. But credit research analyst Moshe Orenbuch of Sanford Bernstein says the product offers no sizable advantages over other forms of financing. He adds, though, that it "should be successful" because of AmEx's strong ties to business users.

AmEx officials say the idea stemmed from focus groups in which customers suggested specialized financing for equipment purchases distinct from traditional lines of credit. They apparently found psychological comfort in the separate borrowing and fixed-payment schedule.

With access to capital a perennial problem for small business, AmEx is playing to a willing market. In a survey last year by Arthur Andersen and National Small Business United, 22% of small- and midsize business owners said lack of financing poses a significant challenge to their businessses. And only 37% of enterprises with under 20 employees reported financing through a commercial bank loan.

AmEx is extending the offer only to holders of its small-business card, although it may broaden the campaign in the future. The company is marketing heavily to small business in various ways, hoping to shore up its overall share of charge-card spending, which has declined from a 1985 high of 26% to 16% recently.

CapitaFinance faces stiff and growing competition since commercial banks, too, are paying increased attention to small business. Among them is Wells Fargo, which recently set aside $1 billion for women entrepreneurs to be disbursed over three years. Demand soared. Now the bank is budgeting $1 billion per year for the next decade.

"Many major banks are offering small-business loans from $50,000 to $100,000 even to people they've never met face-to-face," says Orenbuch. AmEx' rival card issuer Visa is also pushing into the small-business market, Orenbuch says. "Visa is telling banks they can make a big profit on revolving corporate cards in small business." Orenbuch says. "You'll see a lot more banks issuing these corporate cards.

Last spring, though, CapitaFinance tested its offer, and the results "met and exceeded" expectations, company officials say.

The good news in all this: Small-business owners should expect to see an ever-expanding range of borrowing options, says Wells Fargo's Lucy Reid. Reid predicts that up to 10 high-profile lenders will enter the small-business market in the next three years, up from a "handful" today.

By Dennis Berman in New York