We propose a mechanism – “profit-contingent repayable grants” – to support SMEs in the COVID 19 crisis. We argue that the mechanism can be implemented quickly, in a targeted way and with low administrative costs. The mechanism is characterised by a) profit- contingent repayment, b) limited repayment period (forgiveness), c) interest at market rates and d) administration by the tax authorities. Such a mechanism can provide an equity-like support for many SMEs that is both efficient and fiscally prudent. We discuss potential problems.
A mechanism to support SMEs in the COVID 19 crisis