Information frictions and access to the Paycheck Protection Program

Area of Science:

• Economics
• Public Policy
• Small Business Administration

Background:

• The COVID-19 pandemic created an urgent need for economic relief for small businesses.
• The Paycheck Protection Program (PPP) was established to provide forgivable loans to mitigate economic damage.

Purpose of the Study:

• To investigate the distribution of PPP funds and identify factors affecting small business access.
• To analyze the impact of program design on resource allocation and effectiveness.

Main Methods:

• Utilized novel daily survey data from U.S. small businesses.
• Analyzed application patterns, processing times, and approval rates based on business size.

Main Results:

• Information frictions and the "first-come, first-served" nature of the PPP disproportionately benefited larger firms.
• Smallest businesses exhibited lower awareness, later applications, longer processing, and reduced approval rates.
• Businesses receiving aid reported significant benefits, including fewer layoffs and improved employment.

Conclusions:

• The PPP's design may have inadvertently limited its reach to the smallest and most vulnerable businesses.
• Addressing information gaps and application process inefficiencies is crucial for equitable disaster relief programs.