Franchise
By David Jones, MAI, CCIM
Franchised businesses borrow more per loan than independents and charge off more often. Across seasoned originations, franchise loans failed at 7.86% against 6.30% for non-franchised borrowers — a quarter more, on the model that sells itself on reduced risk.
The case for buying a franchise rather than starting something independent rests on risk. You are paying a franchise fee and an ongoing royalty in exchange for a system that has been proven elsewhere: a tested concept, established supply relationships, brand recognition, training, and site-selection support. The pitch is that this reduces the chance of failure.
Lenders behave as though they believe it. Franchise files move more easily, and the SBA maintains a Franchise Directory specifically to streamline eligibility review.
The SBA's loan-level data allows the claim to be checked directly. Every 7(a) record carries a franchise name where one applies. Take a cohort old enough to have resolved, split it by whether the borrower was franchised, and compare.
| Loans | Charge-off rate | |
|---|---|---|
| Franchised | 42,463 | 7.86% |
| Non-franchised | 436,548 | 6.30% |
Franchised borrowers charged off at a rate 24.8% higher than independents.
Before this becomes "franchises are a bad bet," three qualifications, all of which matter.
Franchise loans are larger. The average franchise loan is $782,160 against $488,741 for independents. Larger loans mean more debt service against a business that has to reach a higher revenue threshold to cover it. Some of the gap is leverage, not concept quality.
Franchise borrowers are more often startups. A franchise loan frequently funds a business that does not yet exist — the borrower is buying a system precisely because they have no operating history. Independent borrowers in the same data include a large population of established businesses refinancing or expanding. The comparison is not like-for-like on business maturity.
The categories differ. Franchised lending concentrates in food service, fitness and personal services. Independent lending spreads across construction, professional services and wholesale trade, which carry structurally different risk.
So the honest reading is not that franchising increases failure risk. It is that the franchise premium does not show up as lower default in the lending data, and a borrower being told that a proven system reduces their risk should know that the loans backing those systems fail slightly more often than loans to independents.
The obvious next step is to rank individual brands by charge-off rate, and this analysis was originally scoped to do exactly that. It does not, because the data will not carry it.
The problem is that the brands with current volume are not the brands with seasoned volume. Charge-offs take years to emerge, so a credible brand-level rate needs a meaningful number of loans that are old enough to have failed. Applying that standard:
The brands driving current franchise lending — Hotworx, Crumbl, Scooter's Coffee — are recent concepts with almost no resolved loan history. The brands with history have declining current volume.
Publishing a table showing a brand at 0.00% default on 44 seasoned loans would be arithmetic dressed as insight. One additional failure moves that number to 2.3%. Rankings built on samples that small circulate widely and are wrong.
What can be said about the five brands that clear both thresholds:
| Brand | Seasoned loans | Charge-off rate | Average loan |
|---|---|---|---|
| The UPS Store | 110 | 0.91% | $378,283 |
| Quality Inn by Choice Hotels | 137 | 3.65% | $2,935,976 |
| Subway | 199 | 6.03% | $392,611 |
| FASTSIGNS | 162 | 6.79% | $515,331 |
| Anytime Fitness | 174 | 15.52% | $501,180 |
Five brands is not an index. It is five brands, offered with their sample sizes attached so the reader can weigh them.
Analysis by the research team at sba-feasibility-study.com. Figures computed from public SBA data. Last updated: 28 July 2026.
What the data does support robustly is which brands are actually being financed.
Most-financed franchise brands, FY2021–FY2025
| Rank | Brand | Loans | Average loan |
|---|---|---|---|
| 1 | The UPS Store | 768 | $378,283 |
| 2 | Hotworx | 364 | $370,791 |
| 3 | Crumbl | 244 | $586,320 |
| 4 | Quality Inn by Choice Hotels | 236 | $2,935,976 |
| 5 | Subway | 226 | $392,611 |
| 6 | Anytime Fitness | 218 | $501,180 |
| 7 | Scooter's Coffee | 217 | $1,052,381 |
| 8 | Super 8 by Wyndham | 212 | $2,113,521 |
| 9 | Naturals2Go | 207 | $130,405 |
| 10 | Ace Hardware | 203 | $994,877 |
| 11 | Tropical Smoothie Cafe | 200 | $503,399 |
| 12 | Jersey Mike's | 190 | $503,621 |
The spread in average loan size across this list is the most useful column. Quality Inn at $2.94 million and Super 8 at $2.11 million are hotel acquisitions — real-estate-backed transactions that happen to carry a franchise flag. Naturals2Go at $130,405 is a vending route. These are not comparable businesses, and treating "franchise lending" as one category obscures that.
Aggregating brands into categories produces sample sizes large enough to support a distress comparison.
| Category | Loans | Average loan | Current distress |
|---|---|---|---|
| Home services | 2,559 | $294,787 | 13.40% |
| Personal and other services | 3,325 | $539,899 | 11.04% |
| Fitness and recreation | 2,963 | $562,026 | 10.97% |
| Food service and lodging | 9,877 | $1,201,891 | 9.86% |
| Cleaning and support services | 2,873 | $325,958 | 7.80% |
| Health and care services | 2,681 | $721,741 | 7.46% |
| Retail | 4,160 | $1,026,231 | 7.45% |
Home services — the mobile-franchise category covering repair, remodelling and maintenance concepts — carries the highest distress at 13.40% on the smallest average loan of any category. That combination is the recognisable profile of low-barrier franchising: cheap to enter, easy to finance, and hard to sustain.
Food service and lodging, the largest category by volume, sits mid-table. Its high average loan size reflects the hotel flags rather than the restaurant brands.
If you are buying a franchise, the system you are paying for does not show up in the lending data as reduced default risk. That is not an argument against franchising — the qualifications above are real — but it is an argument against accepting the risk-reduction claim without evidence. Ask the franchisor for Item 19 financial performance representations and unit closure data, and weigh those against the fee.
If you are financing one, category matters more than brand for most concepts, and loan size is the variable that moves outcomes most. A $295,000 home-services franchise and a $2.9 million hotel flag are underwritten as different transactions and behave as different credits.
If you are a lender, franchise status is not a proxy for lower risk in this data, and the SBA Franchise Directory listing that streamlines eligibility review should not be mistaken for a credit signal.
If you are a franchisor, the absence of usable brand-level default data cuts both ways. Systems with genuinely strong unit economics have no public way to demonstrate it, and systems with weak ones face no public accountability. Both would be served by more granular disclosure.
Source. SBA 7(a) FOIA loan-level extracts, as of 31 March 2026. Records with status CANCLD excluded. 504 loans are not included; the franchise field exists in that file but the status vocabulary is not comparable.
Brand normalisation. The FranchiseName field was stripped of trailing qualifiers after a slash, parenthetical suffixes and trailing punctuation, then whitespace-collapsed. This reduced 6,533 raw strings to 6,063 distinct brands across the full file.
Volume cohort. FY2021–FY2025 originations. Brands shown in the volume table have 40 or more loans.
Performance cohort. FY2010–FY2019 originations, a deliberately wide window chosen to maximise seasoned sample size per brand. Brand-level rates are reported only for brands with 100 or more seasoned loans.
Categories. Two-digit NAICS on the recorded NaicsCode, grouped into franchise-relevant categories and restricted to those with 2,000 or more FY2021–FY2025 loans.
The franchise panel — every brand with 40 or more recent loans, with volume, dollar total, average loan size, current distress rate and seasoned charge-off rate where sample size permits — is available as a CSV.
Download the franchise panel (CSV)Licence. This dataset may be reproduced, analysed and republished, in whole or in part, for any purpose including commercial use, provided that sba-feasibility-study.com is credited as the source with a link to this page.
A franchise SBA feasibility study has to do more than verify that the brand is listed in the SBA Franchise Directory. Directory status is an eligibility checkpoint, not a credit conclusion. The data above shows that franchised borrowers in the aggregate charge off more often than independents, and that loan size and category explain much of the outcome. A lender-grade feasibility study should treat franchise status as one input among many and concentrate on the factors that actually move risk: unit-level revenue, debt service coverage, market saturation, and the borrower's operating experience.
For an SBA 7(a) loan to a new franchisee, the feasibility analysis must still demonstrate that the business can generate enough cash flow to cover debt service after royalties, marketing fees and working-capital needs. The "proven system" narrative does not replace that analysis. A good SBA feasibility study will test the claim with local market data, comparable unit economics from the Franchise Disclosure Document, and stress-tested financial projections.
For franchise concepts in high-distress categories — home services, personal services and fitness — the study should explicitly address why this location is different from the category average. For large, real-estate-backed franchise loans, such as hotel flags, the appraisal, market study and environmental review carry at least as much weight as the brand name.
Independent third-party analysis matters here. A feasibility study prepared by a party with a financial interest in the loan closing can be rejected by SBA lenders for lack of analyst independence. Our SBA feasibility studies are written as objective, evidence-based assessments, not advocacy documents, and they are calibrated to the standards lenders expect under SBA SOP 50 10 8.
Analysis by the research team at sba-feasibility-study.com. Figures computed from public SBA data. Last updated: 28 July 2026.
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