Franchise Failure Rate: What 169,000 SBA Loans Reveal

The franchise failure rate is 23.1% based on 169,000 SBA 7(a) loans analyzed by FranchiseVerdict. That means roughly 1 in 4 franchise-backed loans were charged off, contradicting the industry claim that "90% of franchises succeed." However, failure rates vary dramatically by category, brand, and investment size. Some franchise categories exceed a 35% charge-off rate while others stay below 15%.

Where the "90% success rate" myth comes from

The franchise industry frequently cites a statistic that 90% or even 95% of franchises succeed. This figure traces back to studies from the early 2000s that defined "success" as any franchise unit still operating under the brand. By that measure, a franchisee who lost money every year but kept the doors open counted as a success.

SBA loan data provides a more objective lens. When a franchise-backed loan is charged off, it means the borrower could not repay and the lender wrote off the remaining balance. It is not a perfect proxy for business failure (some charge-offs involve refinancing or personal circumstances), but it is the largest standardized dataset available on franchise business outcomes.

Overall franchise charge-off rate

Across all 169,000 SBA 7(a) franchise loans in our database (spanning 2000 to 2024), the aggregate charge-off rate is 23.1%. This means that for every four franchise loans originated, roughly one defaulted. The remaining 76.9% were either paid in full or are still active and current.

For context, the overall SBA 7(a) charge-off rate across all small businesses (not just franchises) is approximately 17%. Franchises actually default at a higher rate than the small business average, which further undermines the narrative that franchising is inherently safer than independent business ownership.

Failure rates by franchise category

Category matters more than almost any other variable. The spread between the safest and riskiest franchise categories is enormous:

Casual dining restaurants lead with a 36.2% charge-off rate, nearly three times the rate of childcare and education franchises. This aligns with what we see in the SBA explorer: restaurant franchises face high fixed costs (rent, labor, food waste) that amplify revenue shortfalls into rapid financial distress.

Failure rates by investment size

Investment size also correlates with outcomes, though not in the direction most people assume:

• Under $100K investment: 21.4% charge-off rate. Lower-cost franchises tend to be home-based or service businesses with lower overhead.
• $100K to $500K: 24.7% charge-off rate. This range includes most brick-and-mortar retail and QSR concepts.
• $500K to $1M: 26.1% charge-off rate. Higher capital requirements mean more debt and greater downside if revenue underperforms.
• Over $1M: 22.3% charge-off rate. The largest investments (hotels, large restaurants) have slightly better outcomes, likely because lenders apply stricter underwriting.

The sweet spot for lower risk appears to be under $100K, where the combination of lower overhead, less debt, and more flexible business models leads to better outcomes. You can filter by investment range using our franchise screener.

Brands with the lowest failure rates

Among brands with at least 100 SBA loans on file (enough for statistical significance), these ten have the lowest charge-off rates:

These brands share common traits: strong unit economics, consistent consumer demand, relatively lower build-out costs for their category, and (in most cases) selective franchisee approval processes.

Brands with the highest failure rates

On the other end of the spectrum, these brands (with 100+ loans) have the highest charge-off rates:

Several of these brands have either gone through bankruptcy (Quiznos, Friendly's) or experienced massive unit-count declines (Curves). High charge-off rates are often a leading indicator of systemic problems within a franchise system.

How to check the failure rate for any franchise

FranchiseVerdict tracks SBA 7(a) charge-off rates for every franchise brand in our database. Here is how to use this data in your research:

1. Search for the brand on FranchiseVerdict and look at the SBA section of its profile page.
2. Check the charge-off rate relative to its category average. A brand with a 15% rate in a category that averages 25% is outperforming.
3. Look at the loan volume. A charge-off rate based on 500 loans is far more reliable than one based on 15. We flag brands with limited loan data on their profile pages.
4. Compare across brands using the comparison tool to see how your target brand stacks up against competitors in the same category.
5. Cross-reference with FDD data. A low charge-off rate combined with strong unit growth (Item 20) and disclosed revenue (Item 19) paints the clearest picture. Read our guide on how to read an FDD.

Methodology

This analysis uses SBA 7(a) loan data obtained through FOIA requests. The dataset includes 169,000 franchise-identified loans originated between 2000 and 2024. We define "failure" as a loan that was charged off (the lender wrote off the outstanding balance after the borrower defaulted). Loans that were paid in full or are current are classified as non-failures.

This methodology has limitations. Not all franchise businesses use SBA financing, so the dataset skews toward franchises in the $100K to $1M investment range. Very low-cost franchises (under $50K) and very high-cost franchises (over $5M) are underrepresented. For a detailed explanation, see our methodology page.

The bottom line

If someone tells you franchises have a 90% success rate, they are either misinformed or selling you something. The real number is closer to 77% based on the largest dataset available. That is still better than a coin flip, but it is a far cry from a guaranteed outcome. The brands and categories you choose matter more than the franchise model itself. Do the research before you write the check.

Related franchise research

Continue your research with our failure rates by industry, is buying a franchise worth it, and how much franchise owners make.