The best SBA funded franchises are those that have a low default rate and a high chance of approval from the Small Business Administration (SBA). We’ve compiled data representing the top SBA funded franchises in one table and the franchises with the highest default rate from FY2020 to FY2023 in another.
Top 20 SBA Funded Franchises
Rank | Franchise Name | SBA Loan Default Rate | Number of SBA 7(a) Loans from FY2020 to FY2023 | Loans Charged Off |
|---|---|---|---|---|
1 | The UPS Store | 0% | 615 | 0 |
2 | HOTWORX | 0% | 305 | 0 |
3 | Subway | 0.82% | 244 | 2 |
4 | Crumbl | 0% | 241 | 0 |
5 | Ace Hardware | 0% | 235 | 0 |
6 | Quality Inn | 0% | 233 | 0 |
7 | Anytime Fitness | 1.40% | 215 | 3 |
8 | Motel 6 | 0% | 209 | 0 |
9 | Super 8 | 0% | 199 | 0 |
10 | Jersey Mike’s | 0% | 188 | 0 |
11 | The Goddard School | 0% | 183 | 0 |
12 | Scooter’s Coffee | 0% | 180 | 0 |
13 | Tropical Smoothie Cafe | 0% | 167 | 0 |
14 | Best Western | 0.61% | 165 | 1 |
15 | Servpro | 0% | 163 | 0 |
16 | Days Inn | 0% | 163 | 0 |
17 | Budget Blinds | 0% | 147 | 0 |
18 | La Quinta Inn | 0% | 145 | 0 |
19 | Domino’s | 0.70% | 143 | 1 |
20 | Smoothie King | 0.74% | 136 | 1 |
Analysis of the Top 20 Franchises
This data was provided by the SBA and ranked by the total amount of loans originated. When compiled, the average default rate of the top 20 franchises is 0.21%. In calculating all franchises that received SBA loans from FY2020 to FY2023, the average default rate is 17.28%.
Fifteen of these top-ranked franchises reported zero charged-off loans, with only five resulting in defaulted loans—notably all with a rate under 2%. Of the data set, the highest reported default rate comes from Anytime Fitness, which also had the highest amount of total loans charged off.
20 Franchises With Highest SBA Loan Default Rates
Rank | Franchise Name | SBA Loan Default Rate | Number of SBA 7(a) Loans from FY 2020 to FY 2023 | Loans Charged Off |
|---|---|---|---|---|
1 | Aire Serv | 14.81% | 27 | 4 |
2 | Mr. Appliance | 13.46% | 52 | 7 |
3 | Pro-Lift Doors | 12.50% | 40 | 5 |
4 | Spray Net | 12.50% | 32 | 4 |
5 | Mobility Plus | 11.54% | 26 | 3 |
6 | The Grounds Guys | 11.40% | 114 | 13 |
7 | Rainbow International | 10.77% | 65 | 7 |
8 | 360 Painting | 10.71% | 56 | 6 |
9 | College Hunks Hauling Junk | 9.89% | 91 | 9 |
10 | Window Genie | 8.82% | 34 | 3 |
11 | Five Star Bath Solutions | 8.00% | 25 | 2 |
12 | Minuteman Press | 6.67% | 45 | 3 |
13 | Conserva Irrigation | 6.67% | 30 | 2 |
14 | Concrete Craft | 6.67% | 30 | 2 |
15 | Nurse Next Door | 6.45% | 31 | 2 |
16 | Schooley Mitchell | 6.06% | 33 | 2 |
17 | SPENGA | 5.56% | 36 | 2 |
18 | Mr. Handyman | 5.56% | 36 | 5 |
19 | Real Property Management | 5.36% | 56 | 3 |
20 | Property Management Inc. | 4.84% | 62 | 3 |
How We Calculated Our Rankings
Our rankings for both sets of data were calculated based on the 20 franchises with the most SBA loans and the 20 franchises with the highest default rates. They were determined by using data provided by the SBA on 7(a) loans made to franchises during the financial year 2020 to 2023. Of the various types of SBA loans, 7(a) loans are the most commonly issued loan of the SBA loan programs and the basis of our data.
In calculating the default rates, the number of charged-off loans of each franchise was divided by the total number of loans given to the franchise, with the exception of current loans. This is because the loan repayment status may change in the future and not be accounted for in year-end calculations.
It’s worth noting that the status of an SBA 7(a) loan can range from the following:
- Paid in full: The loan was paid on time and in full.
- Charged off: Default of the loan occurred, and the lender took a loss.
- Canceled: The debt has been settled for a lesser amount owed, resulting in a loss for the lender.
- Current: The loan is still in the repayment period.
How to Increase Your Chances of Financing a Successful Franchise
If you’re thinking of purchasing a franchise, you may need financing to help support the investment. SBA loans are a common source of funding, although some brands offer franchise financing in-house. If you’re planning on getting a small business loan, you’ll want to ensure that your investment efforts are impactful and reduce the risk of default on the loan.
Here are some steps you can take to help ensure success:
1. Obtain a Franchisor Disclosure Document
A franchisor should provide you with a Franchisor Disclosure Document (FDD), which provides details like estimated costs and requirements for running a franchise. This document can help you determine potential earnings estimates and franchise performance. Franchisors are legally required to provide this document before funds are exchanged.
2. Factor in Your Experience
If you have prior experience owning and operating a franchise, you’re at an advantage and likely better equipped for success. You should consider your business management experience, as you’ll need to account for the hiring, training, and management of employees. It may also be beneficial to have experience in marketing a business, along with prior investment knowledge. If you don’t have applicable experience, challenges may arise regarding eligibility and success.
3. Consider the Franchise Location
You’ll want to ensure that your franchise is in a good location, as it can play a major role in the success of your business. Location accessibility can drive the amount of customers, sales, and growth of a franchise.
4. Secure Your Financing
As with any business investment, there are risks involved with buying a franchise. You’ll need to be established and have the necessary resources to sustain the investment and be eligible for financing. SBA loans can have strict qualification requirements, so you’re more likely to secure financing if you have a strong credit history and access to capital. Check out our article on the best franchise financing options to learn more.
5. Prepare for Potential Roadblocks
To best prepare yourself for success, you should be prepared to address any roadblocks that may prohibit the growth of your business. Whether it be construction delays, cash flow shortages, or obtaining new customers, it’s best to consider these factors and mitigate as much risk as possible beforehand so you are less likely to default on an SBA loan.
If you think an SBA loan can help with your franchising investment, consider our partner, Grasshopper Bank. As an SBA preferred lender, it can facilitate loans up to $5 million and offer a streamlined application process that can help you get access to funds faster. Check out its website to learn more or submit an application.
Frequently Asked Questions (FAQs)
Yes. If you meet SBA loan requirements and are approved by a lender, you can use the funds to finance a franchise using either the SBA 7(a) or SBA 504 loan programs.
Previously, there was an SBA Franchise directory that listed SBA-approved franchises. It has since been removed; now, approved franchises fall to the lender’s decision.
Requirements will vary depending on the loan program and lender; however, to be eligible for an SBA loan, you’ll need to have a strong credit history, proper business documentation, and approved franchise eligibility.
Bottom Line
SBA Loans are a great option for borrowers looking to finance a franchise. Using this data can help you determine whether it may be suitable for your business ventures, whether it be learning about the top SBA funded franchises or other franchises with the highest SBA default rate.
