Government-Backed Small Business Loans During Economic Crises Prevent Job Loss and Increase Sales and Profits

We use a randomized controlled trial with 10,072 small and medium enterprises (SMEs) to examine the impact of a government-backed loan program for small businesses in Chile during the COVID pandemic. In collaboration with a commercial bank in Chile, we randomized half of these 10,072 SMEs to receive loan offers in March-June 2021 during Chile’s most widespread lockdowns. Take-up of the loans was 27%, and the total amount of credit that treated firms (compared to control firms) had across all lenders increased one-for-one with the loans from our experiment. Using linked employer-employee administrative data, we find that while control firms fired employees during lockdown, treated firms did not, leading to 5% higher employment in treated firms over the first year of the experiment. Treatment effects on employment persisted for at least 8 months after firms permanently exited lockdown. In data from a short-term follow-up survey 1-2 years after treatment, treated firms have 24% higher sales and 27% higher profits.