Wells Fargo: Survey shows small business owners continue to see
lower business prospects despite more stable credit outlook, Wells
Fargo/Gallup Small Business falls to new low

Though their concerns about credit availability have stabilized, fewer U.S. small
business owners expect revenues, cash flow, capital spending and hiring to increase
over the next 12 months, according to the latest Wells Fargo/Gallup Small Business
Index, conducted in July. The lower expectations for business prospects contributed
to a 17-point decline from April in the survey’s index of business owner confidence,
finishing at (-28), the lowest score since the survey’s inception.

“The weakened economy has been particularly hard on small businesses and our bankers
are making every effort to help them through this period with financial solutions and
guidance,” said Marc Bernstein, executive vice president and Wells Fargo’s head of
Small Business. “We grew small business lending by 30 percent over the previous quarter
and -- in an effort to increase approvals -- took a “second look” at declined applications, while
continuing to apply our disciplined credit and underwriting principles.”

Credit conditions improved modestly for businesses in July with 32 percent of respondents
reporting that credit was “somewhat” or “very difficult” to obtain over the past 12 months, down
from 36 percent in April. Yet business owners expect credit to remain tight over the next 12
months as 42 percent expect credit to remain “somewhat” or “very difficult” to obtain, the same
percentage reported in April and January 2010.

"Slower consumer spending growth appears to be weighing on small business confidence,"
said Dr. Scott Anderson, Wells Fargo senior economist. "Small businesses are scaling
back on hiring and capital spending plans in the third quarter and remain concerned about the
overall financial health of their companies."

The Index is the sum of “present situation” and “future expectations” of small business
owners for six key measures, including financial situation, cash flow, revenues, capital allocation
spending, job hiring and credit availability. The “present situation” score declined four points to
negative 26 while the “future expectations” component declined 13 points in July to (-2) - the first
negative “future” score in the history of the index.

Index Score: Q3 2010 vs. Q2 2010   
 
                                            Overall Index
                                            Small Business
                                            Owner Optimism     Present Situation      Future Expectations

Q3 2010
(surveyed July 2010)                 -28                               -26                                 -2
Q2 2010
(surveyed April 2010)                -11                                -22                                 11

Of the six key measures, the following five measures served as major drivers of the Index
score during this survey.

Future Expectations:
Revenues – 38 percent expect their companies’ revenues to increase a lot or a little over
the next 12 months, down from 48 percent in Q2 2010
Cash Flow – 43 percent expect their companies’ cash flow to increase, down from 53 percent
in Q2 2010 (lowest point in survey history)
Capital Spending – 37 percent expect their companies’ allocation for capital spending to
decrease a lot or a little over the next 12 months, up from 29 percent in Q2 2010
Hiring – 13 percent expect the overall number of jobs at their companies to increase,
down from 18 percent in Q2 2010 (lowest point in survey history)

Present Situation:
Cash Flow – 36 percent rated their cash flow as somewhat or very good for the past 12
months, down from 42 percent in Q2 2010 (lowest point in survey history)

About the Small Business Index
For the last 29 quarters, the Wells Fargo/Gallup Small Business Index has surveyed small
business owners on current and future perceptions of their business financial situation.
The Index consists of two dimensions: 1) owners’ ratings of the current situation of
their businesses and, 2) owners’ ratings of how they expect their businesses to perform
over the next 12 months. Results are based on telephone interviews with 604 small
business owners in all 50 United States conducted July 5-12, 2010. The overall Small
Business Index is computed from a formula that scores and sums the answers to 12
questions—six about the present situation and six about the future. The overall Index
can range from -400 (the most negative score possible) to +400 (the most positive score
possible), but in practice spans a much more limited range. An Index score of zero
indicates that small business owners, as a group, are neutral—neither optimistic nor
pessimistic—about their companies’ situations. The margin of sampling error is +/- four
percentage points.