Wells Fargo (WFC -0.15%) said in a statement Sunday it will need to limit its participation in the government's massive small-business lending program to $10 billion due to regulatory restrictions.

The $2 trillion stimulus allocated nearly $350 billion to the Small Business Administration (SBA) to provide loans to struggling small businesses to help them pay for expenses such as payroll and rent, while the coronavirus pandemic puts the economy on pause.

Wells Fargo

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Most of these government-backed loans in this program, which is called the Paycheck Protection Program (PPP), will be disbursed through the country's banks.

The news from Wells Fargo is bad for the small-business community because the bank is one of the top SBA lenders in the country. In 2019, it originated 3,033 SBA loans, for a total loan volume of more than $684 million.

The $350 billion in new lending capacity is a massive amount for the SBA to disburse when you consider the agency only did about $28 billion in total SBA loan volume in fiscal 2019.

The PPP got off to a bumpy start on Friday, with many customers saying they could not get through to banks, and many banks saying they could not get through to the SBA.

"While we are actively working to create balance sheet capacity to lend, we are limited in our ongoing ability to use our strong capital and liquidity position to extend additional credit," Wells Fargo CEO Charles Scharf said in a statement.

The Federal Reserve placed a $1.95 trillion asset cap on Wells Fargo after the bank got caught opening millions of fraudulent bank accounts in a sweeping scandal that resulted in a $3 billion fine. 

At the end of 2019, Wells Fargo had about $1.93 trillion in total assets, not leaving too much room for growth before hitting the cap. The bank did request removal of the cap recently, but the Fed has not responded.