The Impact of COVID-19 on Small Business Outcomes and Expectations

Alexander  Bartik; Marianne  Bertrand; Zoë B. Cullen; Edward L. Glaeser; Michael  Luca; Christopher  Stanton

Article | Proceedings of the National Academy of Sciences

The Impact of COVID-19 on Small Business Outcomes and Expectations

by Alexander Bartik, Marianne Bertrand, Zoë B. Cullen, Edward L. Glaeser, Michael Luca and Christopher Stanton

Abstract

To explore the impact of COVID on small businesses, we conducted a survey of more than 5,800 small businesses between March 28 and April 4, 2020. Several themes emerged. First, mass layoffs and closures had already occurred—just a few weeks into the crisis. Second, the risk of closure was negatively associated with the expected length of the crisis. Moreover, businesses had widely varying beliefs about the likely duration of COVID-related disruptions. Third, many small businesses are financially fragile: the median business with more than $10,000 in monthly expenses had only about two weeks of cash on hand at the time of the survey. Fourth, the majority of businesses planned to seek funding through the CARES act. However, many anticipated problems with accessing the program, such as bureaucratic hassles and difficulties establishing eligibility. Using experimental variation, we also assess take-up rates and business resilience effects for loans relative to grants-based programs.

Keywords: COVID-19; stimulus; CARES Act; Health Pandemics; Small Business; Surveys;

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Citation:

Bartik, Alexander, Marianne Bertrand, Zoë B. Cullen, Edward L. Glaeser, Michael Luca, and Christopher Stanton. "The Impact of COVID-19 on Small Business Outcomes and Expectations." Proceedings of the National Academy of Sciences 117, no. 30 (July 28, 2020).

This case touches on the topics of project-based work, agile methodology, and skill and talent management through Catalant's evolution as a company. Catalant’s journey to becoming a software platform and talent marketplace provides context for students to explore new models of work and ways companies are mobilizing talent internal and external to their organization. This case urges students to contemplate how these considerations might shape the critical decisions business leaders will need to make about how to manage their organizations and use their resources to capitalize on their own vision for the future. This case also provides valuable lessons for technology entrepreneurship, introduces students to important gig economy concepts, and asks students to consider the unique challenges facing companies like Catalant that are selling a gig platform as part of their product or service.

The Paycheck Protection Program (PPP) aimed to quickly deliver hundreds of billions of dollars of loans to small businesses, with the loans administered via private banks. In this paper, we use firm-level data to document the demand and supply of PPP funds. Using an instrumental variables approach, we find that PPP loans led to a 14 to 30 percentage point increase in a business’s expected survival, and a positive but imprecise effect on employment. Moreover, the effects on survival were heterogeneous and highlight an important tradeoff faced by policymakers: while administering the loans via private banks allowed for rapid delivery of funds, it also limited the government’s ability to target the funding—instead allowing pre-existing connections between businesses and banks to determine which firms would benefit from the program.

Working Paper | HBS Working Paper Series | 2020

The Targeting and Impact of Paycheck Protection Program Loans to Small Businesses

Alexander Bartik, Zoë B. Cullen, Edward L. Glaeser, Michael Luca, Christopher Stanton, Adi Sunderam, Alexander Bartik, Zoë B. Cullen, Edward L. Glaeser, Michael Luca, Christopher Stanton, Adi Sunderam, Alexander Bartik, Zoë B. Cullen, Edward L. Glaeser, Michael Luca, Christopher Stanton and Adi Sunderam

Keywords: Paycheck Protection Program; targeting; Impact; Entrepreneurship; Health Pandemics; Small Business; Financing and Loans; Outcome or Result; United States;

Citation:

Bartik, Alexander, Zoë B. Cullen, Edward L. Glaeser, Michael Luca, Christopher Stanton, and Adi Sunderam. "The Targeting and Impact of Paycheck Protection Program Loans to Small Businesses." Harvard Business School Working Paper, No. 21-021, August 2020. View Details

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The Impact of COVID-19 on Small Business Outcomes and Expectations

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