Janet planned to purchase a McDonald's franchise. Meanwhile, Jason decided to open his own sandwich shop. Both decided to finance their new business ventures by applying for bank loans. Janet's loan application was approved, but Jason's was denied
Which of the following is the most likely explanation for these results?A) Banks view franchises as having fewer risks than other start-up businesses.
B) Banks can charge higher interest rates when financing franchisees.
C) Banks consider women business owners to present fewer risks than those who are men.
D) Banks prefer to lend to companies that have the potential of a public stock offering.
E) Banks are not allowed to loan to customers starting a business from scratch.
A
Explanation: A) It is often easier to get approved for business loans when running a franchise, as lending institutions often view that there is less risk associated with owning a franchise. Banks view franchises as having fewer risks because of the assumption that such businesses are unlikely to fail because of their established brand. Banks do not charge higher interest rates to franchises, nor is there any evidence that bank lending practices discriminate against male entrepreneurs. Since McDonald's is already a publicly traded company, the bank could not make a lending decision based on the potential of a future stock offering.
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