Time Is Money: Real Effects of Relationship Lending: Evidence from Community Bank Lending in the Paycheck Protection Program.

We provide evidence that the focus of community banks on relationship lending to small businesses combined with their relatively simple organizational structure allowed them to respond faster to Paycheck Protection Program (PPP) loan requests than larger banks. Moreover, we find that community banks lent more per dollar of assets than larger banks. We also find more PPP lending per small business in areas in which community banks have higher pre-pandemic market shares. Finally, using community bank pre-pandemic share of deposits/assets as an instrument for the intensity of PPP lending, we find a negative and significant relationship between county level bankruptcy filings and PPP lending per small business. Overall, our findings suggest that community banks remain an important conduit for small business credit particularly during crises when a rapid response is required.