The Overall Franchise Default Rate
There's a stat that gets thrown around in franchise sales pitches: “franchises have a 90% success rate.” It's a comforting number. It's also misleading. The real picture is more complicated - and more useful.
8.0%
Overall franchise default rate
89,609
SBA loans analyzed
~15%
Overall SBA default rate (all businesses)
Our analysis of 89,609 SBA franchise loans shows an overall default rate of approximately 8.0%. That means roughly 1 in 12 SBA-backed franchise loans end in a charge-off - the lender writes off the debt as uncollectable.
That 8% is significantly better than the overall SBA loan default rate of approximately 15%, which includes all small businesses. Franchises do perform better on average, which makes sense - you're buying a proven system with brand recognition, training, and supply chain support.
But the average masks enormous variation. Some franchise systems have a 0% default rate. Others are above 60%. The brand you choose matters far more than whether you choose a franchise or independent business. Let's look at how different industries and brands perform.
Default Rates by Industry Category
Not all franchise categories carry the same risk. Food-service franchises - which make up the largest share of SBA franchise lending - have a notably higher default rate than service-based concepts.
Why restaurants default more often
Restaurant franchises have higher default rates for straightforward reasons: higher buildout costs (often $500K+), thin operating margins (3-8%), heavy dependence on foot traffic and location, high employee turnover, and food cost volatility. A QSR franchise that misses its revenue projections by 15% may not be able to cover rent and debt service, while a home-services franchise with the same miss can often survive by cutting overhead.
Top 10 Safest Franchises by SBA Default Rate
These franchise systems have the lowest default rates among brands with a meaningful volume of SBA loans. A low default rate doesn't guarantee your success, but it does indicate that the business model, support system, and unit economics are working for most franchisees.
Crumbl Cookies
QSR / Bakery
Nothing Bundt Cakes
QSR / Bakery
Club Pilates
Fitness
Primrose Schools
Childcare
Jersey Mike's
QSR / Subs
Chick-fil-A
QSR / Chicken
Christian Brothers Automotive
Automotive
Orangetheory Fitness
Fitness
Culver's
QSR / Burgers
The UPS Store
Business Services
A caveat on 0% default rates
A 0% default rate in a newer or rapidly growing franchise system may simply mean that not enough time has passed for defaults to materialize. SBA loans are typically 10-year terms, and many defaults occur in years 2-5. If a franchise has been originating SBA loans for less than 5 years, treat the 0% number with appropriate caution. Cross-reference with the franchisee turnover data in FDD Item 20 for a more complete picture.
Top 10 Riskiest Franchises by SBA Default Rate
These franchise systems have the highest default rates among brands with enough SBA loan volume to be statistically meaningful. A high default rate doesn't necessarily mean the franchise will fail, but it's a serious warning sign that warrants deep investigation before committing capital.
Experimac
Retail / Electronics
1000 Degrees Pizza
QSR / Pizza
NY Pizza
QSR / Pizza
Quiznos
QSR / Subs
Cold Stone Creamery
QSR / Desserts
Friendly's
Full-Service Restaurant
Dickey's Barbecue Pit
QSR / BBQ
Schlotzsky's
QSR / Sandwiches
Sbarro
QSR / Pizza
Checkers / Rally's
QSR / Burgers
Several patterns emerge in high-default franchise systems:
If a franchise you're considering has a default rate above 15%, proceed with extreme caution. Ask your franchisor about it directly. Talk to franchisees who opened in the period when defaults were highest. And make sure your own financial projections account for the possibility that the business model may have structural issues.
Why Default Rate Matters for Prospective Franchisees
The SBA default rate is one of the few objective, third-party data points available to franchise buyers. Unlike franchise satisfaction surveys (which can be manipulated) or franchisor marketing materials (which are inherently biased), SBA default data comes from actual loan outcomes - real businesses that either made their payments or didn't.
What default rate tells you
Default rate is not the only metric that matters, and it shouldn't be the sole basis for your franchise decision. But it should absolutely be part of your due diligence toolkit. A franchise with a high default rate needs to answer the question: “What has changed that makes the future different from the past?”
How to Use This Data in Your Due Diligence
SBA default rate data is most powerful when combined with other due diligence data points. Here's how to integrate it into your franchise evaluation process:
Check the default rate before you fall in love
Look up the SBA default rate for any franchise you're seriously considering. Do this early - before you attend Discovery Day, before you sign anything. If the rate is above 15%, it should be a major factor in your go/no-go decision.
Cross-reference with FDD Item 20 (outlet data)
Item 20 of the FDD shows franchisee turnover - how many units opened, closed, were transferred, or were terminated. High SBA default rates combined with high Item 20 turnover is a red flag that the system is losing operators at an unsustainable pace.
Compare against Item 19 financial performance
If the franchise discloses Item 19 data, check whether the median unit economics can comfortably service an SBA loan payment. If the median unit barely breaks even - or if Item 19 is missing entirely - and the default rate is above average, that's a clear warning.
Ask your franchisor about it directly
A strong franchisor will acknowledge their SBA data and explain what they've done to improve it. A franchisor that dismisses the data or claims it's irrelevant is waving another red flag.
Factor it into your lender conversations
When approaching SBA lenders, know your franchise's default rate going in. If it's strong, lead with it - it strengthens your application. If it's weak, be prepared to explain why your situation is different.
FranchiseIQ cross-references this data
When you upload an FDD to FranchiseIQ, our analysis automatically cross-references the franchise system against SBA loan performance data. You'll see how the brand's default rate compares to its category average, alongside our analysis of Item 19 financials, Item 20 turnover, litigation history, and franchisor financial health. It's the kind of analysis that used to take days - done in minutes.
Frequently Asked Questions
What is the overall SBA franchise loan default rate?▾
Which franchises have the lowest SBA default rates?▾
Which franchises have the highest SBA default rates?▾
Does a low franchise default rate guarantee success?▾
How does the SBA franchise default rate compare to independent businesses?▾
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Analyze Any FDD Instantly
Upload your FDD and get a structured analysis of litigation, investment ranges, Item 19, franchisee churn, and financial health.