Franchise Default Rate

The franchise default rate measures the percentage of SBA-backed franchise loans that have been charged off (written off as uncollectible) relative to total loans issued. This is one of the most objective, third-party-verified indicators of franchise system health available to prospective franchisees. Default rates are calculated from SBA 7(a) loan data and published by the Small Business Administration. A low default rate (below 3%) suggests strong unit economics and good operator support, while rates above 8% may signal systemic problems with the franchise model, territory selection, or cost structure. Default rates should be evaluated over multiple years and in context with the total number of loans, as brands with very few loans may show misleading percentages.