Publication Date: August 2020
The Paycheck Protection Program (PPP) extended 669 billion dollars of forgivable loans in an unprecedented eﬀort to support small businesses aﬀected by the COVID-19 crisis. This paper provides evidence that information frictions and the “ﬁrst-come, ﬁrst-served” design of the PPP program skewed its resources towards larger ﬁrms and may have permanently reduced its eﬀectiveness. Using new daily survey data on small businesses in the U.S., we show that the smallest businesses were less aware of the PPP and less likely to apply. If they did apply, the smallest businesses applied later, faced longer processing times, and were less likely to have their application approved. These frictions may have mattered, as businesses that received aid report fewer layoﬀs, higher employment, and improved expectations about the future.
Keywords: COVID-19, Small business, Information frictions, CARES Act
JEL Classification Codes: H0, J01, J08