Franchisees and Loan Default on Third-Party Guarantee Loans: Evidence From the United States

Pankaj C. Patel and John A. Pearce

Entrepreneurship Theory and Practice, 2020, vol. 44, issue 5, 861-877

Abstract: We test the inefficient risk-bearing hypothesis—that third-party loan guarantors bear a higher risk on loans to franchisees than on loans to independent businesses—by assessing whether franchisees default more than independent businesses on third-party guarantee loans. In a sample of 428,233 SBA 7(a) loans disbursed between 2000 and 2016, franchisee loans, compared to independent business loans, with a higher percentage of the loan guarantee or made 1 to 2 years before a recession have a higher likelihood of default. The findings imply a distinctive loan default risk profile for franchisee loans.

Keywords: loan guarantees; SBA; franchisee; loan default (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:sae:entthe:v:44:y:2020:i:5:p:861-877

DOI: 10.1177/1042258719853508

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