Late last year, Distribution Centers Inc. (DCI), of Los Angeles, was in a financial pinch that had its founder and president, Bernie Hecht, perplexed and annoyed at the bank he had done business with for three years. After 15 years of slow but steady growth, the warehousing and distribution company had just signed up some major new clients, including Pillsbury Co. and Procter & Gamble. And, while the prestigious new accounts meant that DCI, with sales of about $6 million, needed additional storage space and more trailers and computer equipment, Hecht knew that support for the expansion would hinge on higher levels of working capital from the company's commercial bank.

In his pitch for the money, Hecht, 61, a 37-year industry veteran, asked his bankers to consider both DCI's improving profitability and a predictable stream of cash coming from two warehouses it leased on a long-term basis to a highly rated company and a municipality. But the bank, a large, California-based commercial lender, made its lack of interest quite apparent. Notes Hecht: "We were tentatively offered about one-quarter of the new money we needed, at an exorbitant rate. And they seemed very grudging about doing even that."

Fortunately for Hecht, the disappointment didn't last long. Last February, through a different lender, DCI succeeded in tripling its most recent working capital at an "attractive" rate, enabling the company to absorb its new business and begin executing plans for further expansion. In the new relationship, Hecht says with relief, "we're involved with people who have taken the time to understand our business and its financial needs."

In other periods of banking history, DCI's shift from one lender to another might simply have signaled new competition among commercial banks for customers in the so-called middle market, broadly defined as businesses with sales of $3 million to $100 million. But, as a more dramatic indication of recent regulatory changes in the financial marketplace, DCI's new lender isn't a commercial bank at all, but rather one of California's largest savings and loan associations.

Under rules passed by Congress last fall, DCI's new lender, Gibraltar Savings, A Federal Savings & Loan Association and other federally chartered S&Ls and savings banks -- traditionally specialists in long-term residential mortgages -- won new powers to invest a portion of their assets in commercial loans. For 1983, S&Ls can lend 5% of their assets to businesses, while savings banks are entitled to invest 7.5%; both types of institutions can boost their business-loan portfolios to 10% of assets in 1984. In addition to these broad, commercial lending powers, federally chartered S&Ls can commit up to 30% of their assets to inventory financing, 40% to commercial real estate lending, and 10% to equipment financing. Meantime, state-chartered institutions in such states as Florida, Maine, and Texas have even wider latitude. And even if as many as half of the nation's 3,833 thrifts -- which together have assets of about $706 billion -- are still undecided about how to play in the new arena, many of the more aggressive institutions, such as Gibraltar, aren't wasting any time in seizing opportunities to make short-term loans at rates that float with the banks' cost of funds.

Starting from scratch early this year, Gibraltar has been scrambling to reach the same middle market that has attracted so many commercial banks in recent years. By the end of the year, the $5 billion -- asset S&L wants to have a commercial-loan portfolio of $100 million, which, boasts senior vice-president James A. Hollingsworth, "would make us a sizable commercial bank in California."

But in luring corporate customers away from established lenders, says Hollingsworth, formerly head of the national accounts group for Lloyd's Bank California in Los Angeles, "Gibraltar doesn't want to go out and buy business by being the cheapest on the block or by taking excessive risks." While he has every intention of his S&L being competitive on both interest-rate and borrowing terms, Hollingsworth thinks the most effective way to win over companies dissatisfied with their banks, such as DCI, is by assembling a team of professional lenders and offering attractive services, including various cash management optionsBeyond that, the strategy is to hit the street -- and hard. "When we see an opportunity for a new client, we have to be willing to go out and figure out how we can beat the competition, he says. Since we're so new, nobody knocks on our door. It's a peopleoriented business, so we have to match our people against theirs."

Instead of retraining its platoons of real estate experts, Gibraltar, like other large thrifts, has been feverishly recruiting seasoned commercial lenders from the very banks it hopes to woo business away from. By the end of June, Hollingsworth had bout 30 lending officers operating out of six corporate offices in California's major business centers. And since Gibraltar has no plans for concentrating on commercial real estate or any other industry sector, Hollingsworth's marching orders to his new hires have been ambitious.

"We're putting together a broad-based commercial banking program that offers everything from secured to unsecured loans and both revolving credit and term loans," he remarks. "Within a short time, you'd be hard-pressed to distinguish us from a commercial bank."

But to gain a solid foothold in their new marketplace, other thrifts haven't been nearly as eager as Gibraltar to look and sound like a commercial bank. In its effort to win corporate clients among companies with sales of less than $40 million, Philadelphia Saving Fund Society (PSFS), for instance, stresses its ability to offer customers longer-term financing with fixed rates for periods of two-and-a-half years and, in some cases, five years -- an advantage the $10 billion savings bank says it derives from its roughly $2 billion of deposits extending 30 months and longer. Claims senior vice-president Norman Bitterman: "We probably have as many two-and-a-half-year deposits as all the local commercial banks combined." PSFS can match loans to these deposits, he says, thereby escaping the interest rate risks other lenders might incur on longer-term, fixed-rate loans.

Even for short-term working capital loans, Pennsylvania-chartered PSFS, which began its commercial lending activities in 1981 and has since made commitments to lend some $375 million, likes to set interest rates according to its own formula, rather than relying on the traditional prime rate. According to Bitterman, PSFS's base rate, which is adjusted monthly, reflects what competitors are charging and the institution's own profit objectives. And while he concedes that usually the base rate doesn't stray far from the prime and could be called a marketing gimmick, "it's been very helpful in showing customers that we like to be flexible with our loan pricing." Sometimes, notes Bitterman, clients are even given a chance to pick from among several pricing options; for short-term loans, the rates can be pegged either to PSFS's own base rate or the prevailing rates for bank certificates of deposit or Treasury bills.

Despite the aggressiveness and creativity some thrifts are showing in their lending, however, the development of full-service capabilities competitive with medium-size to large banks will take time. Fairly standard cash management services such as lockbox collections and emote cash disbursement, for instance, are yet to be offered by either Gibraltar or PSFS, which are among the nation's largest thrifts. And the cost and complexity of implementing systems to support commercial lending -- not to mention the intense, competitive pressures themselves -- have prompted many smaller thrifts to look before they leap.

A foray into commercial lending, notes William Longbrake, executive vice-president and treasurer of Washington Mutual Savings Bank in Seattle, "is no small decision." Longbrake's employer is one of hundreds of thrift institutions that have held off plunging into new waters pending consideration of both the benefits and the costs of gearing up to serve commercial customers. "If you go into the business, you'd better do it right," he says. And doing it right, in Longbrake's view, involves hiring a professional staff as well as investing heavily in competitive service capabilities.

As he sizes up Gibraltar's early impact on the commercial-lending marketplace, Hollingsworth admits, "I don't think many of the banks are shaking in their shoes right now. Mostly, they're feeling the competition from other commercial banks." But within a few years, he predicts, "the entry of S&Ls will add fuel to the whole fire, and everything, including rates, will become more competitive." For some borrowers, such as DCI's Hecht, however, the tangible benefits of competition from thrifts are already evident. "I was looking for a lender who could appreciate what my business needed as it grew," he says. "And I was very pleased -- and surprised -- to find the support where we did."