Did the Paycheck Protection Program have negative side effects on small-business activity?

Abstract

This note uses the U.S. county-level data to show the strong negative, albeit short-lived side-effects of the Paycheck Protection Program (PPP). The PPP targeted small businesses’ maintaining their payroll and salary levels through the early phases of the COVID-19 contraction. The recent literature finds, likely demand driven, positive effects of the PPP. Using the Opportunity Insight Economic Tracker data on open small businesses and small business revenue, this note finds that counties with relatively large exposures to the PPP experienced significant, short-lived declines in those measure. I interpret those as supply driven, potentially intentionally designed given the nature of the pandemic. County-level mean PPP exposure measured by the PPP loan to total assets ratio was 1.83 percent. A one percentage point of exposure to PPP loans to total assets ratio reduced the number of open small businesses by about 4 percent and small business revenue by 7 percent by June 2020 relative to their January 2020 baseline levels.