Did the Paycheck Protection Program Have Negative Side Effects on Small-business Activity?

Abstract

This note uses the U.S. county-level data to study the potential negative side-effects of the Paycheck Protection Program (PPP) participation on small business activity. The program actively targeted small businesses' maintaining their payroll and salary levels through the early phases of the recession triggered by the COVID-19 pandemic. Building on the extensive recent literature that generally finds positive effects of the PPP on economic activity that range from mild to substantial, it uses the Opportunity Insight Economic Tracker data on percentages of open small businesses and changes in small business revenue to show that counties with relatively large exposures to the PPP experienced significant albeit short-lived declines in these two variables. One percentage point of exposure to PPP loan to total assets ratio reduced the percentage of small businesses by about 4 percentage points and small business revenue by 7 percentage points relative to their January 2020 levels.