COVID-19 and SMEs: A 2021 "Time Bomb"?
This paper assesses the prospects of a 2021 time bomb in SME failures triggered by the generous support policies enacted during the 2020 COVID-19 crisis. Policies implemented in 2020, on their own, do not create a 2021 “time-bomb” for SMEs. Rather, business failures and policy costs remain modest. By contrast, credit contraction poses a significant risk. Such a contraction would disproportionately impact firms that could survive COVID-19 in 2020 without any fiscal support. Even in that scenario, most business failures would not arise from excessively generous 2020 policies, but rather from the contraction of credit to the corporate sector.
The views expressed here are those of the authors and do not necessarily reflect the views of the Federal Reserve System, Board of Governors, the Bank of Canada, their staff, or the National Bureau of Economic Research. We thank our discussant Brent Neiman.