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Information Frictions and Access to the Paycheck Protection Program

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Abstract

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.

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  • John Eric Humphries & Christopher Neilson & Gabriel Ulyssea, 2020. "Information Frictions and Access to the Paycheck Protection Program," Cowles Foundation Discussion Papers 2247, Cowles Foundation for Research in Economics, Yale University.
    • Handle: RePEc:cwl:cwldpp:2247
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    More about this item

    Keywords

    COVID-19; Small business; Information frictions; CARES Act;
    All these keywords.

    JEL classification:

    • H0 - Public Economics - - General
    • J01 - Labor and Demographic Economics - - General - - - Labor Economics: General
    • J08 - Labor and Demographic Economics - - General - - - Labor Economics Policies

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