A Mechanism to Support Companies in the COVID-19 Crisis

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 profit-contingent repayment, limited repayment period (forgiveness), interest at market rates and administration by the tax authorities. Such a mechanism can provide an equity-like support for many SMEs that is both efficient and fiscally prudent. Finally, potential problems of the mechanism are discussed.