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Tanner Montague came to town from Seattle having never owned his own music venue before. He’s a musician himself, so he has a pretty good sense of good music, but he also wandered into a crowded music scene filled with concert venues large and small.But the owner of Green Room thinks he found a void in the market. It’s lacking, he says, in places serving between 200 and 500 people, a sweet spot he thinks could be a draw for both some national acts not quite big enough yet for arena gigs and local acts looking for a launching pad.“I felt that size would do well in the city to offer more options,” he says. “My goal was to A, bring another option for national acts but then, B, have a great spot for local bands to start.”Right or wrong, something seems to be working, he says. He’s got a full calendar of concerts booked out several months. How did he, as a newcomer to the market in an industry filled with competition, get the attention of the local concertgoer?

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by Andrew Tellijohn
February 2006

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Small time


Small time

Debra Paterson tells how even the tiniest companies can get loans

by Beth Ewen   Debra Paterson oversees $11 billion in assets, 2,400 employees and more than 95 stores, since coming to Wells Fargo in Minneapolis 18 months ago. She’s in charge of retail and business banking in the Twin Cities. She says her bankers are keenly interested in lending to small-business owners and selling them a wide range of products, and are emphasizing even more in 2006 the smallest of the small, those with $0 to $2 million in annual revenue. Here’s insight into how small-business owners can improve their chances of getting capital.Upsize: Before Minnesota you were in Arizona and California. What’s different about the small-business scene here compared with there?

Paterson: It’s similar. Everywhere right now small business is big business. Wells Fargo has always been committed to small business. We have here a great opportunity to grow. We are already the No. 1 SBA lender. I think there’s even more opportunity in SBA lending.

Upsize: How do you view the small-business market?

Paterson: The metrics always focus on loans. Where we have even more opportunity is as businesses continue to need more services, such as cash management, gift cards. There’s a lot of opportunity here to grow loan share, but also what we call share of wallet.

Upsize: At Upsize we define small businesses as having fewer than 100 employees. How do you break up the market?

Paterson: There’s a very wide spectrum. There are companies with $150,000 in revenue, a husband-and-wife team, maybe. Then there are companies with $8- or $9 million in annual revenue, maybe 100 employees.

We break up the market into those with $0 to $2 million in revenue, and $2 million to $10 million and above. Our job is to ask brilliant questions and offer both groups a package of services that will help them.

Upsize: It sounds as though you’re putting new emphasis on the $0 to $2 million group.

Paterson: We’re targeting both groups, we have specific goals to grow revenue and cross sell. We probably are putting more emphasis on that smallest group. We want those customers. We’ve done a lot of research on them.

A lot of business customers walk into our stores. They may have their personal accounts with us. We can sit down with them, and we can present a package of solutions to them. They can benefit from our basic products, such as online banking, bill pay, business debit cards. They can get rewards for using their cards, that’s nice.

Always the loans, that’s the cornerstone of our business. Also with interest rates low in the last year or two, more and more businesses are wanting to purchase or build their building.

For the larger small companies, above $2 million, we have cash management tools, such as electronic banking, a cash management specialist, real-time access to their money. They can pay suppliers electronically, deposit electronically. They can really maximize their cash.

Upsize: Many people are surprised when I tell them that more than 96 percent of all companies have fewer than 100 employees.

Paterson: Yes. Even our own team members sometimes are surprised. Ninety-nine percent of all [private] employees are small-business employees. Forty to 60 percent of new jobs come from small business. Greater than 50 percent of the gross domestic product is from small businesses.

Upsize: I would think many financial institutions would ignore the market from $0 to $2 million in revenue.

Paterson: We’ve always been very active in $2- to $10 million, and up to $20 million. We hired 18 new bankers in that segment this year. The newfound has been the smallest. That smaller segment has been ignored. Those companies really help the local economy. Our emerging markets, we’ve been successful, and we’re going to do more active programs.

When you think about our local economy, think of the revitalization in the neighborhoods where these small businesses are. They’re thriving, to have those restaurants there, and other small businesses. It’s good for our economy.

Upsize: We’ve just completed a survey that says more than 85 percent of small-business owners expect increased revenue in 2006, from 2005. How does that compare with your analysis?

Paterson: That is consistent with the research we do. Seventy percent of the businesses surveyed felt positive about their current business situation. Seventy-eight percent expected their cash flow to grow over the next 12 months.  Also, just anecdotally, people are buying equipment; they’re purchasing their own buildings. Even with interest rates going up, the hurricanes in the South, fuel costs going up, they’re optimistic.

Upsize: What are your economists saying about interest rates?

Paterson: Our economists see that they’re going up, but as to what degree and how often that of course comes with a lot of disclaimers. In terms of capital available to lend, I don’t see that slowing down at all. We have money to lend. Our credit quality is very strong.

Upsize: Has that changed over the time you’ve been here?

Paterson: I’ve been here about 18 months, and the overall quality of our portfolio has risen in that time. We are going to want to make loans and gain deposits.

Upsize: What about your competitors? There are a lot of banks competing for this business segment.

Paterson: Every time I turn around there’s a new bank opened.

Upsize: There’s Crown Bank right across the street, for example, one of the several de novos that have sprung up over the last five or six years.

Paterson: Obviously people starting the banks are optimistic. You wonder what their long-term strategies are, if they want to sell them. Our president was here a couple of weeks ago, and everyone wants to ask, “What is Wells Fargo doing? Do we want to buy banks?” He thinks that will open up with banks becoming available to buy.

With the regulatory and compliance issues growing, and the other thing is the need to invest in technology, maybe they’ll want to sell.

Upsize: How can business owners increase their chances of getting a loan?Paterson: The first thing is, have a well thought out plan. Especially, show how they’re going to repay the loan.

Upsize: A lot of business owners spend time explaining their vision, but the bank just wants to get paid back, right?

Paterson: They’re very creative about their ideas, but if you show us how you’re going to repay it, that counts for a lot. And what is your contingency plan? You’ve got to have a contingency plan if the first scenario doesn’t work.Second, how much equity are you putting in? Bankers like to see if an owner has put in some of their own equity.

There’s traditional underwriting, of course, the five Cs of credit. I’ve been in banking for 26 years and I learned these five Cs in year one. That’s character of the individual. That’s No. 1, their personal credit history. No. 2, credit, if they’re a business, how do they pay their suppliers? No. 3, cash flow. Do they have the money to pay the loan back? No. 4, capacity: Is there a way to generate revenue in some other way if the first idea doesn’t work? No. 5, collateral. Do we need to make the loan secured, such as with real estate or equipment?

Upsize: Is it true that companies under three years old can’t get an unsecured loan?

Paterson: No, that’s not the case, because we do look to personal credit histories. It’s strength in all of those areas I mentioned. Business lending is more of an art than a science.

Upsize: Really? I think business owners would say it’s all about the numbers.

Paterson: Certainly there is a process of analyzing the numbers. But then other things come into it. What are the conditions in that particular market? What’s the timing? Clearly, the numbers are important. But it’s also people doing business with people.

[contact] Debra Paterson is regional president of metro Minnesota community banking for Wells Fargo: 612.667.9401; debra.paterson@wellsfargo.com; www.wellsfargo.com