Top 20 SBA Funded Franchises & 20 Franchises With Highest Default Rate
Tom has 15 years of experience helping small businesses evaluate financing and banking options. He shares this expertise in Fit Small Business’s financing and banking content.
This article is part of a larger series on Business Financing.
More than 20,000 franchised businesses are started in the United States annually. However, not all franchises are created equal. We have researched SBA 7(a) loan data from 2010 to 2021 to see which franchises had the most Small Business Administration (SBA) loans approved and which of their franchisees were most successful in paying those loans off. We also have researched which franchises had the highest rates of SBA 7(a) loan default during this same timeframe.
Top 20 SBA Funded Franchises
Rank | Franchise Name | SBA Loan Default Rate | Number of SBA 7(a) Loans From 2010-2021 (Excludes Currently Outstanding Loans) | Loans Charged off |
|---|---|---|---|---|
1 | Subway | 7.32% | 820 | 60 |
2 | Jimmy John’s | 6.15% | 358 | 22 |
3 | Anytime Fitness | 8.66% | 335 | 29 |
4 | Sport Clips | 1.89% | 317 | 6 |
5 | Little Caesars | 5.04% | 238 | 12 |
6 | UPS Store | 0.00% | 224 | 0 |
7 | Firehouse Subs | 9.82% | 224 | 22 |
8 | Orange Theory Fitness | 0.00% | 206 | 0 |
9 | Dairy Queen | 3.45% | 203 | 7 |
10 | Quality Inn | 0.52% | 193 | 1 |
11 | Servpro | 4.15% | 193 | 9 |
12 | Days Inn | 1.59% | 189 | 3 |
13 | Dunkin’ Donuts | 1.10% | 182 | 2 |
14 | Massage Envy | 8.99% | 178 | 6 |
15 | Great Clips | 2.98% | 168 | 5 |
16 | Allstate Insurance | 3.70% | 162 | 6 |
17 | Super 8 | 2.55% | 157 | 4 |
18 | Ameriprise Financial | 0.66% | 151 | 1 |
17 | European Wax Center | 1.32% | 151 | 2 |
20 | Comfort Inn | 0.67% | 150 | 1 |
Analysis of the Top 20 Franchises
The default rate for the 20 franchises in our ranking was 4.3% when all of their loans are compiled together. Among all franchises, SBA 7(a) loans defaulted at an average rate of 9.9% between 2010 and 2021. Each of the top 20 franchises had a default rate below the overall franchise average.
Five of these franchises had no more than one charged-off SBA loan in 11 years, with the UPS Store and Orange Theory Fitness both having no change-offs at all. Firehouse Subs had the highest default rate of the top 20 at 9.82%. Subway had the most total charge-offs, a total of 60, between 2010 and 2021. However, their default rate of 7.32% was below the average franchise SBA loan default rate.
20 Franchises With Highest SBA Loan Default Rates
Rank | Franchise Name | SBA Loan Default Rate | Number of SBA 7(a) Loans From 2010-2021 (Excludes Currently Outstanding Loans) | Loans Charged off |
|---|---|---|---|---|
1 | Experimac | 77.08% | 48 | 37 |
2 | Dental Fix RX | 65.71% | 35 | 23 |
3 | Tutor Doctor | 40.00% | 30 | 12 |
4 | Bahama Buck’s | 36.00% | 25 | 9 |
5 | Orange Leaf Frozen Yogurt | 35.62% | 73 | 26 |
6 | Meineke | 34.18% | 79 | 27 |
7 | Ilovekickboxing.com | 33.33% | 45 | 15 |
5 | Sign-a-Rama | 32.14% | 56 | 18 |
9 | Dickey’s BBQ Pit | 31.54 | 130 | 41 |
10 (tie) | Jake’s Wayback Burgers | 26.67% | 30 | 8 |
10 (tie) | Quizno’s | 26.67% | 30 | 8 |
12 | Great Harvest Bread Company | 25.65% | 39 | 10 |
13 | Complete Nutrition | 25.58% | 43 | 11 |
14 | AAMCO | 25.00% | 56 | 14 |
15 | 9Round | 23.91% | 46 | 11 |
16 | Fantastic Sams | 22.58 | 62 | 14 |
17 | Pita Pit | 22.22% | 45 | 1 |
18 | Batteries Plus | 20.59% | 34 | 7 |
19 | Minuteman Press | 20.00% | 55 | 11 |
20 | Menchie’s | 19.01% | 121 | 23 |
Note: We only considered franchises that had at least 25 SBA loans originated from 2010 to 2021 as we deemed anything less than that number to likely not be statistically significant.
How We Compiled Our Rankings
We compiled the 20 franchises with the most SBA loans and 20 franchises with the highest SBA loan default rates. These rankings were determined using data that we obtained from the SBA on 7(a) loans made to franchises from 2010 through 2021. 7(a) loans are the most popular of the different types of SBA loans that are guaranteed by the SBA, with roughly 10% of 7(a) loans going to franchises.
At any given time, that status of an SBA 7(a) loan will be one of four things:
- Paid in full: The borrower paid off the loan on time and in full
- Charged off: The borrower became delinquent on the loan, and the lender took a loss
- Canceled: The borrower settled the debt with the lender for a lower amount than they owed, which is also a loss for the lender
- Current: The loan is currently outstanding
To calculate the SBA loan default rates, we divided the number of charged-off loans for each franchise by the total number of loans for the franchise, excluding currently outstanding loans. Loans currently outstanding are excluded because borrower repayment status may change in the future.
How to Increase Your Franchise’s Chances of Success
If you choose to start a franchise, here are four things you can do to increase your likelihood of success.
1. Ask for the Franchisor Disclosure Document
The Franchisor Disclosure Document (FDD) outlines the estimated costs involved in owning and running the franchise. Legally, the franchisor is required to provide this document before you pay them any money. It can help ensure you have the necessary capital to be successful. Sometimes, franchisors also include earnings estimates in their FDDs, which can help you evaluate franchise performance.
2. Consider Your Experience
Ideally, you should have some experience to help you successfully run the franchise. For example, if you’re starting a McDonald’s franchise, do you have a background in the foodservice or restaurant industries? Do you have general business management experience in hiring employees, training employees, and marketing? Starting a franchise without any experience can put you at a disadvantage when challenges arise.
3. Evaluate the Physical Location
Location can make or break your franchise. A Subway located in downtown San Francisco is probably much costlier to operate than a Subway located in rural Pennsylvania. However, the San Francisco Subway likely gets many more customers than the Pennsylvania Subway, which helps offset the cost. This is a tradeoff that you’ll have to carefully consider.
4. Secure Your Financing
Investing in a franchise is no sure bet. As with any small business, you must be sufficiently capitalized. Delays in construction of your location, slow growth of a customer base, unexpected competition, lawsuits, or unrelated personal matters could all contribute to a franchisee defaulting on an SBA loan. An undercapitalized franchisee is more at risk than others when adversity arises.
Ultimately, the key is to thoroughly research the franchise and everything that will be required of you as the owner. Doing your homework ahead of time can prevent unpleasant surprises later and put you on the path to successful franchise ownership.
Additional Resources on Starting a Franchise
Franchise opportunities abound and owning a franchise can be a lucrative path to entrepreneurship. It’s important that you get as much financial information about a franchise as possible before buying. You should also consider more than SBA loan data when choosing which franchise to own.
Many other factors, such as startup costs, royalty fees, number of employees you have to manage, and popularity of the franchise among customers, also come into play. If you’re looking for more specific information on franchises, consider our articles on the best franchises that cost under $10,000 and 25 franchises that cost under $25,000.
Once you decide which franchise you’re interested in, you may need some financing to get going. A few brands offer franchise financing in-house, but the majority of franchisees do not. An SBA loan is one of the most popular small business loan options for franchises and is available from both local and national lenders.
If you’re planning to apply for an SBA loan, consider using FranFund. FranFund specializes in financing for franchise owners and can approve an SBA loan of up to $350,000 in a matter of weeks. If you have relevant business experience and need fast SBA financing, you can begin the process to get a loan with a free consultation.
Bottom Line
SBA loans are one of the most popular franchise financing options, which is why it’s beneficial to use this data to help you make an informed decision about those franchises that are successful. Banks provided billions of dollars in recent years in SBA-backed funding to franchises. Many factors go into a franchisee’s ability to repay an SBA loan. That a franchisee has defaulted on an SBA loan doesn’t necessarily mean the franchise is unsound or a bad investment. However, loan default data is a useful consideration when weighing whether to invest in that franchise or not.
