Small Bank Financing and Funding Hesitancy in a Crisis: Evidence from the Paycheck Protection Program

We study the delivery of subsidized financing to small firms through the Paycheck Protection Program (PPP). Smaller firms are less likely to gain early PPP access, an effect attenuated in small banks and firms with prior lending relationships. Their more even treatment offers a new rationale, beyond traditional soft information arguments, for why small businesses pair with small banks. We also detect a “funding hesitancy” in PPP uptake by small businesses, partly reflecting their wariness of the extensive, subjective government powers to investigate PPP recipients. We discuss the implications of the results for research and policies on small business financing.

Keywords: Bank Relationships, Covid-19, Coronavirus, Paycheck Protection Program, PPP, SBA, Small Business Lending

JEL Classification: G32, G38, H81, E61

Suggested Citation: Suggested Citation

Puri, Manju and Balyuk, Tetyana and Prabhala, Nagpurnanand, Small Bank Financing and Funding Hesitancy in a Crisis: Evidence from the Paycheck Protection Program (September 2021). FDIC Center for Financial Research Paper No. 2021-01, Available at SSRN: https://ssrn.com/abstract=3796210 or http://dx.doi.org/10.2139/ssrn.3796210