To help small businesses survive the pandemic, Wells Fargo announced Thursday that it is donating the $400 million in fees it earned off the federal Paycheck Protection Program to nonprofit organizations that primarily assist Black and other minority owners.
Wells Fargo, which lost many business customers after bungling their PPP applications, wound up processing more than 185,000 PPP loans worth a total of $10.4 billion, the fifth highest loan total in the banking industry, according to the U.S. Small Business Administration.
"We can see that small businesses are hurting," said Jenny Flores, head of small business growth philanthropy at Wells Fargo. "Forty-one percent of small, Black-owned businesses have closed since COVID hit. We want to make sure we put our money where our mouth is."
Community lenders said they hope other financial institutions follow suit, noting that no other bank has donated so much money in a single move to their efforts.
"This is huge," said Maurice Jones, president of Local Initiatives Support Corp. (LISC), a New York nonprofit with community lending offices in 35 cities, including St. Paul. "I hope other banks will see this as a challenge and try to better them. I want to see them compete on this."
Wells Fargo is donating fees it received from the SBA for processing loans for the government's largest small business relief program. Under the program's rules, lenders could not collect fees from the companies themselves. So far, several other big banks — including Bank of America, Citigroup and JP Morgan — have pledged to donate their net profits from processing PPP loans, but not 100% of their fees.
Wells Fargo will be taking applications from community lenders over the next month for its new Open for Business Fund, with money flowing by August. By January 2021, Wells Fargo expects to provide a total of $250 million to so-called Community Development Financial Institutions, which promote economic development in poorer communities that are traditionally underserved by banks. Flores said lenders will provide a combination of grants and low-interest loans to struggling business owners.
"We know some businesses cannot absorb a loan at this time, so we are being very flexible in terms of how the money is used," Flores said.
Another $100 million will flow to Small Business Development Centers and other groups that provide technical assistance to minority business owners, such as help with budgets, business plans and marketing. The remaining $50 million will be set aside for future needs of small businesses.
"We don't have a crystal ball to say, 'This is what small businesses will need a year from now,' " Flores said. "But we want to make money available to small businesses so they have support on an ongoing basis to recover."
Flores said Wells Fargo wants lenders to use some of the money to help businesses that were hurt in the protests following the death of George Floyd in Minneapolis. More than 1,500 businesses in the Twin Cities were damaged in the riots, with costs expected to reach $500 million.
"We haven't earmarked any money, but we want to prioritize those applications when they come in," Flores said.
Wells Fargo's gesture to small businesses comes as it battles to emerge from a fake-accounts scandal that has enveloped the company for nearly four years, a sprawling controversy that has upended its executive suite, sparked widespread litigation, and cost the company billions of dollars in fines and settlements. The San Francisco-based bank is ranked No. 2 in Minnesota based on market share, behind U.S. Bancorp.
Flores said she recognizes the fact that some people will assume the bank is making the donation to offset bad publicity, but she noted that the program is effectively an extension of a $175 million campaign begun in 2015. That donation generated $1.6 billion in financing for minority-owned small businesses, creating nearly 200,000 jobs in the United States.
Community lenders said Wells Fargo has been a significant partner in their work for decades.
"If I had to look at the most consistent investors in our community-development work — and we've been doing this for 40 years — Wells Fargo would be among the top," said Jones, whose nonprofit has invested more than $22 billion in the minority community since 1979. "This is going back long before the recent troubles that Wells has gotten into."
One of the first recipients of the new round of funding is the Metropolitan Economic Development Association (MEDA), a Minneapolis nonprofit that has helped more than 22,000 minority business owners since 1971. MEDA will share in a $13.5 million grant to the Expanding Black Business Credit Initiative.
"MEDA is incredibly appreciative of the award," said Alfredo Martel, MEDA's president and CEO. "It comes at a time of incredible urgency and relevance to our mission."
Jones said the minority business community is desperate for capital. He said his organization expected about 5,000 applications when it recently announced it was making $2.5 million available for small businesses hurt by COVID-19. Instead, the group was swamped with 250,000 requests for assistance from around the U.S., prompting LISC to increase the program to $15 million. But that is still enough to fund only about 2,000 applicants.
"The platform is on fire right now," Jones said. "We've got to help these businesses if we want them to survive the combination of the COVID shutdown and the recession."