Economics, Econometrics and Finance
3 years ago

Third-party credit guarantees reduce loan risk and rates for U.S. firms.

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SSRN Electronic Journal
Credit Guarantees and the Cost of Debt: Evidence from Corporate Loans
Mehdi Beyhaghi

Paper Summary

One-third of corporate loans in the US are fully guaranteed by separate legal entities. These guarantees lower loan risk, rates, and delinquency. They help firms facing asset value drops by reducing the need for collateral and increasing the use of credit guarantees, especially for smaller firms.

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