Small Bank Financing and Funding Hesitancy in a Crisis: Evidence from the Paycheck Protection Program
74 Pages Posted: 3 Mar 2021 Last revised: 6 Dec 2021
Date Written: September 2021
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