The United States government has been guaranteeing loans that has a high default rate. According to data published by the Wall Street Journal the government has guaranteed numerous working-capital loans that went bad.
One of the best examples shown in the data is the way that the U.S. government is helping businessmen to buy Cold Stone Creamery franchises. In the past ten years Cold Stone Creamery franchise have defaulted on about 29% loans that were backed by the government. That has cost ordinary tax payers in tens of millions of dollars that could have been used for more useful purposes.
But the default rate for Cold Stone Creamery franchise isn't the worst. The default rate for the sandwich chain Quiznos reached 30%. That chain filed for bankruptcy last March.
Getting a franchise is an easier way to establish a business for those with enough money. Pay the amount asked for by the company and the franchisee gets a package that includes a brand that has been established and easily recognizable by the public. They also get supplies and instructions that will ensure the success of their business.
The problem of course is that there is no guarantee of success. Even the most successful brand can fail. There are so many factors that can affect the success or failure of a business.
While Cold Stone Creamery and Quiznos do not have the worst failure rates they have cost taxpayers a great deal because of the great number of the loans that have been backed by the government. The question now being raised is why the government keeps on guaranteeing loans that keep on going bad. The problem seems to lie in the fact that little attention is paid to the default rate of franchise companies. This neglect is costing the country a lot.
