Franchisees and Loan Default on Third-Party Guarantee Loans: Evidence From the United States
Pankaj C. Patel, John A. Pearce
Entrepreneurship Theory and Practice · 2020 · Volume 44 · Issue 5
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
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