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.
This note provides new evidence on how small business owners have been impacted by COVID-19, and how these eﬀects have evolved since the passage of the CARES Act. As part of a broader and ongoing project, we collected survey data from more than 8,000 small business owners in the U.S. from March 28th, one day after the CARES Act was passed, through April 20th. The data include information on ﬁrm size, layoﬀs, beliefs about the future prospects of their businesses, as well as awareness of existing government relief programs. We provide three main ﬁndings. First, by the time the CARES Act was passed, surveyed small business owners were already severely impacted by COVID-19-related disruptions: 60% had already laid oﬀ at least one worker. Second, business owners’ expectations about the future are negative and have deteriorated throughout our study period, with 37% of respondents in the ﬁrst week reporting that they did not expect to recover within 2 years, growing to 46% by the last week. Third, the smallest businesses had the least awareness of government assistance programs, the slowest growth in awareness after the passage of the CARES Act, and never caught up with larger businesses. The last ﬁnding indicates that small businesses may have missed out on initial Paycheck Protection Program funds because of low baseline awareness and diﬀerential access to information relative to larger ﬁrms.