Information frictions and access to the Paycheck Protection Program

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. •Information frictions and Paycheck Protection Program's "first-come, first-served" design disadvantaged the smallest businesses.•Firm's expectations about the future deteriorated rapidly in the three to four weeks following the passing of the CARES Act.•Smaller businesses had lower awareness of government programs that could help their business during the COVID-19 crisis.•Smaller businesses were less likely to apply to the PPP, and they were less likely to report having their application approved.•Getting a PPP loan was associated with later reporting more employees and lower probabilities of closure or bankruptcy.