The difficult circumstances for retail in 2020 have led many small businesses to rely on federal stimulus to stay afloat, namely through the Paycheck Protection Program. Following the government extension of PPP, Wells Fargo has announced it will pledge an additional $400 million toward supporting small businesses impacted by the pandemic.
Through its new Open for Business Fund, Wells Fargo will donate the money it makes on loan processing fees and direct the money to nonprofit organizations that “provide capital, technical support and long-term resiliency programs” to small businesses. There is a particular emphasis on those organizations that support minority-owned small business, in light of findings that show Black businesses have been disproportionately impacted by COVID-19.
“Black businesses have faced the largest shutdown of any diverse group in the country,” said Ron Busby, Sr., CEO of U.S. Black Chambers. “We lost 41% — or 450,000 — Black-owned small businesses in this pandemic so far, and all of those businesses provided jobs, so we need to accelerate an economic agenda that helps them recover.”
This move builds on Wells Fargo’s April commitment to donate all processing fees from the PPP. Since the Paycheck Protection Program was first instated, Wells Fargo has funded loans for 179,000 customers, amounting to $10.1 billion. Of those loans, the average loan was worth $56,000, and 84% of the recipients were companies with fewer than 10 employees. Roughly 60% of loans were for amounts of $25,000 or less, while 90% of applicants had $2 million or less in annual revenue.
The Open for Business Fund will direct $28 million of the approximate $400 million donated, to Community Development Financial Institutions that support Black and African American-owned small businesses. Two of the earliest beneficiaries highlighted by Wells Fargo are Expanding Black Business Credit Initiative (EBBC) and Local Initiatives Support Corporation (LISC).
EBBC works to close the racial wealth gap in African American communities and particularly targets the rapid deployment of capital to impacted communities in the Mid-Atlantic, Southeast and Midwest. LISC will fund grants and low-cost capital to over 2,800 entrepreneurs, with a focus on preventing loss in revenue, sustaining employment and averting vacancies.
This new commitment from Wells Fargo, and the federal government, comes as The Small Business Index reported greater optimism from small business owners in June than in April. This may be due to the original stimulus received by many businesses, in addition to the gradual reopenings of stores in many states.
But Wells Fargo warned against interpreting this too positively — the numbers are still 19% lower than in January (pre-pandemic), and 52% of minority communities reported that they believe the economy is now in a recession. An additional 26% said they did not feel “very or at all prepared” for a pandemic-induced economic downturn.
“June’s survey saw business-owner optimism increasing as reopenings have been getting underway, but the overall data shows that for many, there’s still a long road to recovery,” said Mark Vitner, chief economist at Wells Fargo. “The pandemic’s effects are also still being sorted out, as communities across the country are in different stages of recovery, so optimism around indicators like revenues and number of jobs will continue to shift as those stages progress.”
Beginning today, the Open for Business Fund will begin accepting applications from CDFIs and special purpose funds that serve minority-owned business, for its first grant cycle that closes Aug. 7. Future grant cycles will target technical assistance and recovery and will be announced later in the year.