Wells Fargo--the nation's biggest small business lender--sent its business customers reeling over the weekend when it announced that it would cap its participation in the Paycheck Protection Program (PPP) at $10 billion. What a difference three days makes.
On April 8, the Federal Reserve Board--the main governing body of the Federal Reserve System--announced that due to intense interest in the emergency small business loan program it would temporarily modify the restrictions it had imposed on Wells Fargo that caused the bank to institute the cap. The effort presumably allows Wells Fargo to provide additional lending support to small businesses. The company has $1.9 trillion in assets.
The change is to be applied narrowly, according to a release from the Fed. It will only apply to the bank's small business lending capacity as part of the PPP, as well as the Fed's forthcoming Main Street Lending Program. Any proceeds the bank gets from the programs need to be returned to the Treasury Department or to a nonprofit.
It's unclear how Wells Fargo will respond to the change or if it will indeed expand its small business lending capacity. The bank did not respond to a request for comment by the time of this article's publication.
On April 5, Wells Fargo announced that it would limit its program to nonprofits and companies with fewer than 50 employees and that it would lend a maximum of $10 billion through the PPP. The company cited capital restrictions imposed in 2018 by the Federal Reserve Board, after it was caught creating phony accounts, among other compliance issues.
The April 8 announcement effectively releases Wells Fargo from these asset restrictions insofar as PPP and Main Street loans are concerned.
Joe Shamie, president of New York City-based children's furniture maker Delta Children, said he had spent the last few days scrambling for a new lender after getting word earlier this week that Wells Fargo--his company's bank of about 20 years--wouldn't be able to support his PPP loan application.
While not condoning the bank's past actions, Shamie was buoyed by the reversal. "This is amazing news," he said. "Now I have nothing to complain about."
Shamie is counting on a small business loan to help fund the salaries of his more than 300-person staff, who have all remained on the payroll even as the company's facilities have largely shut down in the wake of the coronavirus pandemic. He's currently awaiting word from Wells Fargo on the status of his loan application.