Wells Fargo & Co., seeking fresh ground for its small-business lending operation, has found a way to penetrate the intensely competitive Canadian market.

In a twist, the San Francisco banking company will be getting a major assist — essentially all its new customers — from Toronto’s Canadian Imperial Bank of Commerce. The two companies have agreed on an alliance in which Canadian small businesses that fail to qualify for loans of up to $100,000 under CIBC’s credit guidelines will be automatically referred to Wells.

Observers said the loan program gives Wells Fargo a chance to move its lending business further into the Canadian market, which it has been targeting by direct mail and telephone campaigns since 1997. Wells Fargo, which is recognized as strong in the fields of credit scoring and pricing small-business credits, also will be able to grow its loan volume, the observers said.

“We have the capabilities, experience, and expertise to handle a broad range of small-business borrowing needs,” said Marc Bernstein, executive vice president at Wells Fargo.

The alliance is not Wells’ first of the kind — other U.S. banks already refer small businesses that do not meet their lending guidelines to Wells. In the past CIBC has referred customers to the Business Development Bank in Canada or to private equity firms.

But the pairing with the Canadian bank indicates a desire by Wells to spread its wings. It has a $3 billion portfolio of unsecured lines of credit for U.S. small-business owners, but so far has lent about $65 million north of the border.

Michael Gallagher, senior vice president of Business Direct at Wells, said the company has been working to expand its presence. “Over the seven years, we have built up so much knowledge and experience,” he said. “We are continually experimenting.”

Mr. Gallagher would not reveal the financial details of the partnership, but said the agreement “is a modest revenue share, since we are making the loans and taking all of the risk.”

Under the plan, CIBC’s loan application will include directions for bank employees to refer the applicant to Wells Fargo if the loan is not approved.

The deal “will provide Canadian small businesses with even greater financing capability by leveraging Wells Fargo’s extensive lending expertise in the sector,” said Carol Gray, executive vice president of Toronto-based CIBC Small Business Banking. “It will ensure more Canadian small businesses have quick and seamless access to funding.”

The alliance will also dissuade the Canadian bank’s small-business customers from picking up and moving to a Canadian competitor. Royal Bank of Canada, also in Toronto, is the largest small-business lender there, followed by Canadian Imperial.

Charles Wendel, president of Financial Institutions Consulting in New York, said the loans referred to Wells “go out of the market, because Wells is not a local player.” He called the concept an “attractive idea” and said that Wells will have success with CIBC.

“Wells has more experience than anybody in making loans outside of its market,” Mr. Wendel said. “They will get additional loan volume at reduced origination costs. It allows them to enter a market they would have difficulty entering otherwise.”

Officials at both companies were unsure on the amount of loans that will be transferred. Typically, banks approve between 40% and 60% of business loan applications that are under $100,000, Mr. Gallagher said.

CIBC devoted more resources to its small-business lending unit after reporting a 15% increase in small-business loan growth last year. The bank currently has more than 350,000 small-business customers. Last year it created the business unit with 2,000 of its employees who work with small-business customers.

Ms. Gray said the partnership with Wells will fill a need for small businesses in Canada. Connecting with a new lender in a quick manner has “never been available to small-business clients” in that country, she said.

Mr. Gallagher calls the agreement “a win-win-win” situation. Customers will get the loans, CIBC will be able to retain the customers for other products, and Wells will make the loans, he said. “We are quite pleased. They are a big bank with a serious commitment to the business marketplace.”

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