Should a Servicizing Manufacturer Provide Guaranteed Financing for a Capital‐Constrained Operator?

ABSTRACT Small and medium‐sized operators leasing innovative equipment from servicizing manufacturers often face capital constraint. Bank financing (BF) is the primary funding source, but credit constraint and insufficient collateral make operators struggle to secure bank loans. Guaranteed financing (GF), where manufacturers assume operator's bankruptcy risk in place of banks, offers a potential remedy for financing challenges. Nevertheless, manufacturers face a critical challenge in determining whether to provide GF, as it involves a trade‐off between bankruptcy risk and potential benefits. By integrating financing, product quality and leasing decisions within a servicization supply chain, we develop a Stackelberg game model to analyze the interactions among a servicizing manufacturer, a capital‐constrained operator and a bank. Our results show that the manufacturer cannot always benefit from the GF. The manufacturer prefers to provide GF only if the equipment's operating efficiency is either relatively low or high. Interestingly, we find that the manufacturer may set a negative guarantee rate to subsidize the operator under certain conditions. Furthermore, compared to BF, the GF incentivizes manufacturers to provide higher quality products but does not necessarily encourage operators to extend the leasing duration. We also identify the conditions under which the operator prefers GF and the equilibrium financing strategy for the supply chain.