Wells Fargo Bank is setting its sights high for the small business market.

In a rare public strategy statement, the San Francisco-based bank said it has targeted $2 billion for new loans to small businesses in California by the end of 1995.

The announcement symbolizes Wells Fargo's focus on this market, said Terri Dial, an executive vice president in the bank's business banking group.

"This has been one of the core businesses for Wells Fargo for the last six years," said Ms. Dial.

Recognized in the banking industry as a leader in development of new methods and products for small business, the bank has made similar commitments before.

During National Small Business Week in the summer of 1993, the bank said it would make $2 billion in new small business loans by the end of 1994.

The 1993 effort surpassed even the bank's prediction. Wells reported it made a total of $2.7 billion in new small business loans during the 18 months that ended Dec. 31.

Wells Fargo was able to do this kind of volume because of its cost structure, said Campbell Chaney, a San Francisco-based analyst with Rodman & Renshaw. He said Wells has a reputation among competitors for being a low-cost provider.

"In the eyes of their competitors, Wells is probably the best large-cap lender to small businesses in California," said Mr. Chaney.

The basis for this reputation is the bank's ability to quickly give business owners an answer to loan applications. Because it can make a credit decision and underwrite a loan quickly, Wells has a lower cost structure and is able to pass that savings on to borrowers.

That should help the bank as the market for small business loans in California heats up.

Where small business loans have traditionally been priced at 100 to 200 basis points over prime, bankers say those same loans are now priced as low as 100 basis points below prime.

And with the Federal Deposit Insurance Corp. talking of reducing the insurance premium it charges to the best banks from 23 cents per $100 of deposits to 4 cents per $100, many bankers expect the majority of this 19 basis point windfall to be applied to reducing the interest rates charged on these loans.

"Bankers I've talked to will use a lot of that windfall in loan pricing because that's where the competition is," Mr. Chaney said. "It's cutthroat out there."

But Wells Fargo has already displayed its ability to lend profitably at smaller dollar volumes. Ms. Dial estimated that 90% of the loans made during the bank's 1993-1994 program were for amounts less than $300,000, with an average of about $70,000. She expects that trend to continue into the new commitment.

For other small business bankers in the state, that spells bad news.

"Where we've seen them in a competitive situation for potential new customers, they have been really aggressive on pricing and really aggressive on terms," said David Payne, chairman, president, and chief executive of San Rafael, Calif.-based WestAmerica Bancorp. "Their talk is not only real, but it is translated into an proactive attempt to execute their program."

So far, Wells Fargo has succeeded in its attempts. At June 30, the bank had 84,670 commercial and industrial loans under $1 million outstanding - the most at any bank in the nation. (June 30 is the most recent date for banks to report on their small business lending.)

At the same time, the bank also had the largest dollar value of small commercial and industrial loans outstanding in California, with more than $1.4 billion. That portfolio was more than $400 million larger than second- place finisher Bank of America, which reported a portfolio of just over $1 billion for the region.

While Wells Fargo is seen in the market as a formidable competitor on price and structure, few competitors say the bank is equally strong on service.

Common among complaints leveled against Wells Fargo is that customers must deal with a number of officers for different kinds of transactions.

Said one banker: "Where we've been able to dislodge Wells' customers has tended to pivot on service, where our price may not be the cheapest, but we're close."

But the bank is continually trying to improve its small business lending operations. Ms. Dial said the business gets a complete overhaul every 15 to 18 months, speeding up this evolutionary process.

While the publicly announced commitment to lend $2 billion to small business by the end of this year has put the bank's reputation as a small business lender on the line, Ms. Dial believes the bank will be able to rise to the challenge.

"We've learned it's very motivating to have your business plan in the newspaper," she said. "When you put it in writing and in the newspapers, you will work to make sure you achieve it."

"Call us crazy, but that's what it's all about."

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